Manual of Regulations For Banks Consumer Protection Related

MANUAL OF REGULATIONS
S
FOR BANK
ANKS
FOREWORD
The 2008 Manual of Regulations for Banks (MORB) is an updated compilation
of banking regulations and policy issuances of the Bangko Sentral ng Pilipinas (BSP).
Available in hard and soft copies, it is a convenient reference and guide for banks in
the conduct of their operations.
The updated MORB incorporates regulatory policies issued to align banking
practices on risk management, good corporate governance, and capital adequacy,
accounting and reporting with international standards. It also includes rules
implementing legislative reform measures, the more significant of which are the
General Banking Law of 2000, the Anti-Money Laundering Act of 2001 and the Special
Purpose Vehicle Act of 2002.
In providing banks and the banking public easy access to this information, the
updated MORB seeks to facilitate compliance with the BSPs supervisory and regulatory
requirements that will contribute to the enhancement of the partnership between BSP
and the banking sector, and ultimately to the strengthening of the Philippine Banking
System and the economy.
AMANDO M. TETANGCO, JR.

Governor
FOREWORD
Soon after the establishment of the new Bangko Sentral ng Pilipinas (BSP), the
Monetary Board recognized the need not only to update but also to improve the presentation
of the Manual of Regulations for Banks to make it a more useful and accessible information
resource for the banking industry and the interested public. A special committee was
therefore created to revise the old Manual accordingly.
This revised format Manual is the outcome of that effort. It benefits from the inputs
of many concerned departments of the BSP as well as the various banking industry
associations. By combining the multi-dimensional perspective, we are hopeful that this
new Manual and its subsequent updates will be able to more effectively disseminate the
regulatory issuances of the BSP on a timely basis and provide appropriate guidance to the
banking community.
We also believe that it will be a especially useful tool at this time when the BSP
has come up with many new banking regulations and issuances in response to the
unprecedented challenges posed by the Asian crisis.
Nevertheless, we recognize that there will always be room for improvement. Our
task is therefore a continuing one of constant search for a better product to provide better
services to the public.
GABRIEL C. SINGSON
Governor
PREFACE
( to the 2008 edition)
The 2008 Manual of Regulations for Banks (MORB) is an updated edition of the
1996 MORB. The updates consist of the significant policy developments and changes in
statutory laws. It shall serve as the principal source of banking regulations issued by the
Monetary Board and the Governor of the BSP and shall be cited as the authority for enjoining
compliance with the rules and regulations embodied therein.
A multi-departmental Committee on the Updating of the Manual of Regulations for
Banks and Non-Banks Financial Institutions was created under Office Order No. 430, Series
of 2007 dated 08 June 2007. Under the aforesaid office order, the Committee is tasked to
update the Manuals on a continuing basis (i) to incorporate relevant issuances (ii) propose
revision/deletion of provisions which have become obsolete, redundant, irrelevant or
inconsistent with laws/regulations (iii) reformulate provisions as the need arises and (iv)
oversee printing of the Manuals/Updates in coordination with the Corporate Affairs Office.
The Committee is composed of Director Alberto A. Reyes (Central Point of Contact
Department [CPCD] II), Chairman; Deputy Director Magdalena D. Imperio (Office of the
General Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo G. Barcarse,
Manager II (Centralized Applications and Licensing Group [CALG]); Mr. Aristides R. Wylengco,
Manager II (Examination Department [ED] III); Ms. Jocelyn L. Lobas, Manager II Integrated
Supervision Department I (ISD I); Atty. Ruben B. Parto, Acting Manager II (ED I); Ms. Ma.
Corazon T. Alva, Manager II (ED II); Ms. Ma. Belinda G. Caraan, Bank Officer IV (Office of
Supervisory Policy Development [OSPD]); Atty. Lord Eileen S. Tagle, Legal Officer III,
(OGCLS); Ms. Maria Cynthia M. Sison, Bank Officer IV (OSPD); Mr. Armando M. Dizon, Bank
Officer III (CALG)); Atty. Florabelle S. Madrid, Bank Officer III (CPCD I), members; and Deputy
Governor Nestor A. Espenilla, Jr. of the Supervision and Examination Sector, Adviser.
The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Acting Manager
(CPCD II), Head; and Ms. Ma. Corazon B. Bilgera, Bank Officer II (OSPD); Ms. Ma. Cecilia
U. Contreras, Supervision & Examination Specialist I (CPCD II), members.
The Bangko Sentral ng Pilipinas
PREFACE
The 2005 Manual of Regulations for Banks (MORB) is an updated edition of the
1996 MORB. The updates consist of the significant policy developments and changes
in statutory laws. It shall serve as the principal source of banking regulations issued by
the Monetary Board and the Governor of the BSP and shall be cited as the authority for
enjoining compliance with the rules and regulations embodied therein.
A multi-departmental Committee on the Updating of the Manual of Regulations
for Banks and Non-Banks Financial Institutions was created under Office Order No.
430, Series of 2007 dated 08 June 2007. Under the aforesaid office order, the
Committee is tasked to update the Manuals on a continuing basis (i) to incorporate
relevant issuances (ii) propose revision/deletion of provisions which have become
obsolete, redundant, irrelevant or inconsistent with laws/regulations (iii) reformulate
provisions as the need arises and (iv) oversee printing of the Manuals/Updates in
coordination with the Corporate Affairs Office.
The Committee is composed of Deputy Director Alberto A. Reyes (Central
Point of Contact [CPC] II), Chairman; Deputy Director Magdalena D. Imperio (Office
of the General Counsel and Legal Services [OGCLS]), Vice Chairman; Atty. Policarpo
G. Barcarse, Manager II (Centralized Applications and Licensing Group [CALG]); Mr.
Aristides R. Wylengco, Manager II (Supervision and Examination Department [SED]
III); Ms. Jocelyn L. Lobas, Manager II (SED V); Atty. Ruben B. Parto, Acting Manager II
(SED I); Ms. Ma. Corazon T. Alva, Acting Manager II (SED II); Ms. Ma. Belinda G.
Caraan, Bank Officer IV (Office of Supervisory Policy Development [OSPD]); Atty.
Lord Eileen S. Tagle, Bank Attorney I, (OGCLS); Ms. Maria Cynthia M. Sison, Bank
Officer III (OSPD); Mr. Armando M. Dizon, Bank Officer II (CALG)); Atty. Florabelle
S. Madrid, Bank Officer I (CPC I), members; and Deputy Governor Nestor A. Espenilla,
Jr. of the Supervision and Examination Sector, Adviser.
The Committee Secretariat is composed of Ms. Celedina P. Garbosa, Asst.
Manager (SED IV), Head; Ms. Ma. Corazon B. Bilgera, Bank Officer I (OSPD); Ms.
Donah P. Marcelino, Administrative Services Officer III (SED V); Mr. Felix B. Corsino,
Jr., Administrative Services Officer III (SED III), members.
vi
PREFACE
The Manual of Regulations Banks (the New Manual) is not only an updated edition
but also a revised and consolidated version of the first three volumes of the present Manual
of Regulations for Banks and Other Financial Intermediaries, Book I, II and III (the Old
Manual). Its adoption was impelled by certain considerations, namely: (1) that the Central
Bank of the Philippines as the administrative agency of the monetary, banking and credit
system which promulgated the Old Manual has been replaced by the Bangko Sentral Ng
Pilipinas (BSP) as the central monetary authority, (2) that the Old Manual was last updated
as of 31 December 1989 and since that time, significant developments in the statutory law
and the financial system of the country have rendered many of its provisions obsolete or
irrelevant, and (3) that there was need to simplify the code of banking regulations for
ready accessibility to, and the convenience of, the users.
To accomplish the work of proposing revisions to the Old Manual, the Monetary
Board of the BSP, in its Resolution No. 1203 dated 07 December 1994, directed the creation
of a multi-departmental Ad Hoc Review Committee. This committee was officially
constituted under Office Order No. 2, Series of 1995 and consisted of Deputy General
Counsel Melpin A. Gonzaga (Office of the General Counsel and Legal Services), as
chairman; Deputy Director Ma. Dolores B. Yuvienco (Supervisory Reports and Studies
Office); Deputy Director Rolando A. Q. Agustin (Department of Commercial Banks I);
Deputy Director Danilo A. Monasterio (Department of Rural Banks); Deputy Director
Erlinda S. J. Marzan (Department of Thrift Banks and Non-Bank Financial Institutions), as
members; and Managing Director Fe B. Barin (Office of the Monetary Board), as adviser.
The technical staff of the Ad Hoc Committee was composed of Atty. Magdalena D. Imperio,
Bank Attorney III, as head; and Mr. Fernando B. Caballa, Manager II; Mr. Lauro C. Abuzo,
Bank Officer III, Atty. Policarpo G. Barcarse, Manager II; Mr. Nicanor F. Rillera, Manager
II; and Mr. Aristides R. Wylengco, Manager II, as members. Deputy Governor Armando L.
Suratos, the BSP General Counsel, acted as committee consultant.
Under the aforesaid office order, the Ad Hoc Committee was instructed to examine,
evaluate and review the provisions of the four (4) volumes of the Old Manual for purposes
of (1) deleting therefrom provisions which are obsolete, redundant, irrelevant, superfluous
or inconsistent with law, (2) amending provisions so as to make them consistent with each
other or to harmonize them with existing statutes, executive issuances and official policies,
and (3) reformulating provisions to make them more responsive to the needs and concerns
of the banking and financial intermediation industry.
In discharging its mandated tasks, the Ad Hoc Review Committee sought the
comments of certain departments of the BSP, particularly, Treasury, Foreign Exchange,
Economic Research, Cash, Accounting, and Loans and Credit, on the proposed changes to
provisions of the Old Manual relevant to their operations. Likewise consulted were the
various associations in the banking industry, such as the Bankers Association of the
Philippines, the Chamber of Thrift Banks, the Rural Bankers Association of the Philippines
and the Trust Officers Association of the Philippines. Their valuable suggestions contributed
much to the accomplishment of this project.
vii
The New Manual comprises substantially the regulatory issuances of the BSP, as
well as those of its predecessor agency, the Central Bank of the Philippines, as they were
amended or revised through the years, up to 31 December 1996. It shall serve as the
principal source of all substantive banking regulations issued by the Monetary Board and
the Governor of the BSP and shall be cited as the authority for enjoining compliance with
the rules and regulations embodied therein.
It is fervently hoped that the publication of this long-awaited new code of banking
regulations will measure up to the expectations of the Philippine banking sector.
viii
INSTRUCTIONS TO USERS
The Manual of Regulations for Banks (the Manual) is the comprehensive authority
on the specific subjects covered therein. New rules and amendments to the rules shall
immediately form part of the affected section or subsection of the Manual while repealed
rules shall be deleted so that the user shall no longer refer to a separate issuance, i.e.,
circular or memorandum, but shall instead cite the particular section or subsection of the
Manual. Banks shall comply with the provisions of the Manual and any violation thereof
shall be punishable under its specific and/or general provisions on sanctions.
As a code of regulations, the Manual is divided into six (6) Parts, further sudivided
into major topic headings which intorduce the corresponding sections, and subsections
that made up the provisions governing a particular aspect of bank operations.
Coding of the Manual provisions utilizes six (6) digits where the first four (4) digits
refer to a Section while the last two (2) digits (if there is any and which is separated from the
first four digits by a period) refer to a Subsection.
The first digit refers to a type of bank to which the regulation is applicable.
"X" denotes a common provision applicable to all types of banks; "1" means that the regulation
is applicable to commercial banks (KBs); "2" means that it applies to thrift banks (TBs); and
"3" to rural banks (RBs) and cooperative banks (Coop Banks).
The second digit refers to the Part of the Manual, i.e., "1" refers to "Organization,
Management and Administration"; "2" for "Deposits and Barrowing Operations"; "3" for
"Loans, Investments and Special Credits"; "4" for "Trust, Other Fiduciary Business and
Investment Management Activities; "5" for "Foreign Currency Deposit System and Other
Operations in Foreign Currency"; and "6" for "Miscellaneous Provisions". The third and
fourth digits refer to the main caption of the provision while the fifth and sixth digits, if any,
refer to the subcaption or subsection under the main caption.
ix
Thus, to illustrate, the code numbers X161.2 and 1162.13 would indicate
Main caption on Records
Subcaption on SFAS
Part One on Organization, Management and Administration"

Manual of Regulations for Banks (Common provision)
Main caption on Records

Subcaption on Additional
Reports from KBs"
1
13
Part One on Organization, Management and Administration"

Manual of Regulations for Banks (Unique provision for KBs)
The paging is by Parts, each Part beginning with page 1, and so on, corresponding
to the number of pages of the particular Part. For example, Part I, consisting of six (6) pages
will start with a first page indicated as Part I - Page 1, and Part I - Page 6 as its last page.
The pages for updates will follow the same pagination, with letters added to indicate inserted
pages, in the event amendatory regulations require additional pages.
MANUAL OF REGULATIONS FOR BANKS
TABLE OF CONTENTS
PART ONE
- ORGANIZATION, MANAGEMENT AND ADMINISTRATION

A. CLASSIFICATIONS AND POWERS OF BANKS
SECTION
X101
Classifications, Powers and Scope of Authorities of Banks

X101.1
(Reserved)
X101.2
Prerequisites for the grant of a universal banking
authority
X101.3 X101.5 (Reserved)
X101.6
Conditions for the grant of authority to convert into
a lower category
SECTION
X102
Basic Guidelines in Establishing Banks

X102.1
Suspension of the grant of new banking licenses on
the establishment of new banks
X102.2
Partial lifting of general moratorium on the licensing
of new thrift banks and rural banks
X102.3
Conversion of microfinance-oriented thrift banks/
rural banks
SECTION
X103
Certificate of Authority to Register
SECTIONS X104 - X105
(Reserved)
B. CAPITALIZATION
SECTION
X106
Bank Capital
X106.1
Minimum capitalization
X106.2
Capital build-up program
X106.3
Memorandum of understanding; prompt corrective
action program; sanctions
X106.4
Prompt corrective action framework
(Reserved)
C. MERGER OR CONSOLIDATION OF BANKS

SECTION
X111
Merger or Consolidation to Meet Minimum Capital

X111.1 Requirement of Bangko Sentral approval
X111.2
Rules on exchange of shares
xi
SECTION
X112
Merger or Consolidation Incentives
(Reserved)
D. RISK-BASED CAPITAL ADEQUACY RATIO

SECTION
X116
Minimum Ratio
X116.1 Qualifying capital
X116.2 Risk-weighted assets
X116.3 Definitions
X116.4 Required reports
X116.5 (Reserved)
1116.5 Market risk capital requirement
2116.5 (Reserved)
3116.5 (Reserved)
X116.6 Sanctions
X116.7 Temporary relief
X116.8 Capital treatment of exposures/investments in certain
products
(Reserved)
SECTION
X119
Issuance of Unsecured Subordinated Debt

X119.1 Minimum features of UnSD
X119.2 Prior BSP approval
X119.3 Pre-qualification requirements of issuing bank
X119.4 Public issuance of UnSD
X119.5 Private or negotiated issuance of UnSD
X119.6 Issuance overseas of UnSD
X119.7 Qualified investors/buyers
X119.8 Prohibitions on holdings of UnSD
X119.9 Accounting treatment
X119.10 - X119.12 (Reserved)
X119.13 Sanctions
SECTION
X120
Interim Tier 1 Capital for Banks Under Rehabilitation
E. LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS

SECTION
X121
Liberalized Entry and Scope of Operations of Foreign Banks

X121.1 Modes of entry of foreign banks
X121.2 Qualification requirements
X121.3 Guidelines for selection
xii
X121.4
X121.5
Capital requirements
Composition of capital accounts; compliance with
capital ratios
X121.6 Prescribed ratio of net due to and permanently
assigned capital
X121.7 Head office guarantee
X121.8 Scope of authority for locally incorporated subsidiaries
of foreign banks as well as branches with full banking
authority
X121.9 Limitations
X121.10 Change from one mode of entry to another
X121.11 Listing of shares with the Philippine Stock Exchange
X121.12 Applicability to Philippine corporations
(Reserved)
F. STOCK, STOCKHOLDERS AND DIVIDENDS

SECTION
X126
Shares of Stock of Banks

X126.1 Limits of stockholdings in a single bank
X126.2 Transfer of shares
X126.3 Other foreign equity investment in domestic banks
X126.4 Convertibility of preferred stock to common stock
X126.5 Issuance of redeemable shares: conditions;
certification and report; sanctions
X126.6 Stock options/warrants
X126.7 - X126.9 (Reserved)
X126.10 Dealings with stockholders and their related interests
SECTION
X127
(Reserved)
SECTION
1127
Shares of Stock of Universal/Commercial Banks

1127.1 Limits on stockholdings in several banks
1127.2 - 1127.5 (Reserved)
SECTION
2127
SECTION
3127
Shares of Stock of Thrift Banks

2127.1 Moratorium on ownership ceilings
2127.2 Preferred shares
2127.3 - 2127.5 (Reserved)
Shares of Stock of Rural Banks and Cooperative Banks
3127.1 Moratorium on ownership ceiling
3127.2 Government-held shares
3127.3 Limits on stockholdings in several rural banks
3127.4 Convertibility of preferred stock to common stock
3127.5 Equity investment by holding corporations
xiii
(Reserved)
SECTION
X136
Dividends
X136.1 Definitions
X136.2 Requirements on the declaration of dividends
X136.3 Net amount available for dividends
X136.4 Reporting and verification
X136.5 Recording of dividends
X136.6 Issuance of fractional shares
SECTION
X137
(Reserved)
SECTION
1137
(Reserved)
SECTION
2137
(Reserved)
SECTION
3137
Limitations/Amount Available on Dividends Declared by Rural

Banks and Cooperative Banks
3137.1 Dividends on government shares
(Reserved)
G. DIRECTORS, OFFICERS AND EMPLOYEES

SECTION
X141 Definition and Qualifications of Directors; Responsibilities and

Duties of Board of Directors
X141.1
Definition/limits
X141.2
Qualifications of a director
X141.3
Powers/responsibilities and duties of directors
X141.4
Confirmation of the election/appointments of directors
and officers
X141.5
Place of board of directors meeting
X141.6 - X141.8 (Reserved)
X141.9
Reports required
X141.10
Sanctions
SECTION
X142 Definition and Qualifications of Officers

X142.1
Definition of officers
X142.2
Qualifications of an officer
X142.3
Appointment of officers
SECTION
X143 Disqualification of Directors and Officers

X143.1
Persons disqualified to become directors
xiv
X143.2
X143.3
X143.4
X143.5
Persons disqualified to become officers

Effect of non-possession of qualifications or
possession of disqualifications
Disqualification procedures
Watchlisting
SECTION
X144 Bio-data of Directors and Officers
SECTION
X145 Interlocking Directorships and/or Officerships

X145.1
Representatives of government
SECTION
X146 Profit Sharing Programs
SECTION
X147 Compensation and Other Benefits of Directors and Officers
SECTION
1147 (Reserved)
SECTION
2147 (Reserved)
SECTION
3147 Bonding/Training of Directors, Officers and Employees
SECTION
X148 (Reserved)
SECTION
X149 Conducting Business in an Unsafe/Unsound Manner

X149.9
Sanctions
SECTION
X150 Rules of Procedure on Administrative Cases Involving Directors

and Officers of Banks
H. BANKING OFFICES
SECTION
X151 Establishment/Relocation/Voluntary Closure/Sale of Branches

X151.1
Prior Monetary Board approval
X151.2
Prerequisites for the grant of authority to establish a
branch
X151.3
Application for authority to establish branches
X151.4
Branching guidelines
X151.5
Branch processing fee
X151.6
Establishment of other banking offices
X151.7
Date of opening
X151.8
Requirements for opening a branch/other banking
office
xv
X151.9
X151.10
X151.11
X151.12
Relocation of branches/other banking offices

Voluntary closure/sale of branches/other banking
offices
Relocation/transfer of branch licenses of closed banks
Sanctions
SECTION
X152 Relocation of Head Offices

X152.1
Sanctions
SECTION
X153 Establishment of Additional Branches of Foreign Banks

X153.1
Application for authority to establish additional branch
X153.2
Requirements for establishment of additional branch
X153.3
Date of opening
X153.4
Requirements for opening a branch
X153.5
Choice of locations for establishment of branches
X153.6
Sanctions
SECTION
X154 Establishment of Offices Abroad

X154.1
Application for authority to establish an office abroad
X154.2
Requirements for establishing an office abroad
X154.3
Conditions attached to the approved application
X154.4
Date of opening
X154.5
Requirements for opening an office abroad
X154.6
Sanctions
X154.7 - X154.8 (Reserved)
X154.9
Establishment of a foreign subsidiary by a bank
subsidiary
SECTION
X155 Tellering Booths

I. BANKING DAYS AND HOURS
SECTION
X156 Banking Days and Hours

X156.1
Banking hours beyond the minimum; banking
services during holidays
X156.2
Report of, and changes in, banking days and hours
X156.3
Posting of schedule of banking days and hours
(Reserved)
J. RECORDS AND REPORTS
SECTION
X161 Records
X161.1
Adoption of the Manual of Accounts

xvi
X161.2
X161.3 1161.9
2161.9
3161.9
SECTION
X162 Reports
X162.1
X162.2
X162.3
X162.4
X162.5
X162.6
X162.7
X162.8
X162.9
X162.10
X162.11
X162.12
X162.13
1162.13
2162.13
3162.13
X162.14
Philippine Financial Reporting Standards/Philippine

Accounting Standards
X161.9 (Reserved)
(Reserved)
(Reserved)
Retention and disposal of records of rural/cooperative
banks
Categories and signatories of bank reports
Sanctions in case of willful delay in the submission of
reports/refusal to permit examination
Submission of certain required information
Report on crimes/losses
Report on real estate/chattel transactions
Reconciliation of head office and branch transactions
List of stockholders and their stockholdings
Bangko Sentral offices, where reports are submitted
Publication/Posting of balance sheet
Consolidated financial statements of banks and their
subsidiaries engaged in financial allied undertakings
Reports of other banking offices
Reports required of foreign subsidiaries/affiliates/
banking offices or non-bank entities of domestic banks
(Reserved)
Additional reports from UBs/KBs
(Reserved)
(Reserved)
Reports of strikes and lockouts
X162.15
Report on the Sworn Statement on Real Estate/Chattel

Transactions
X162.16
Financial Reporting Package
X162.17 - X162.20
(Reserved)
K. INTERNAL CONTROL
SECTION
X163 Internal Control System

X163.1
Proper accounting records
X163.2
Independent balancing
X163.3
Division of duties and responsibilities
X163.4
Joint custody
X163.5
Signing authorities
X163.6
Dual control
xvii
X163.7
X163.8
X163.9
X163.10
X163.11
X163.12
SECTION
Number control
Rotation of duties
Independence of the internal auditor
Confirmation of accounts
Other internal control standards
Internal control procedures for dormant/inactive
accounts
X164 Internal Audit Function

X164.1
Status
X164.2
Scope
X164.3
Qualification standards of the internal auditor
X164.4
Code of Ethics and Internal Auditing Standards
L. MISCELLANEOUS PROVISIONS
SECTION
X165 Selection, Appointment and Reporting Requirements for External

Auditors; Sanction; Effectivity
SECTION
X166 Audited Financial Statements of Banks

X166.1
Financial audit
X166.2
Posting of audited financial statements
X166.3
Disclosure of external auditors adverse findings to
the Bangko Sentral; sanction
X166.4
Disclosure requirement in the notes to the audited
financial statements
X166.5
Disclosure requirements in the annual report
X166.6
Posting and submission of annual report
SECTION
X167 Business Name
SECTION
X168 Management Contracts
SECTION
X169 Duties and Responsibilities of Banks and their Directors/Officers

in All Cases of Outsourcing of Banking Functions
X169.1
Prohibition against outsourcing certain banking functions
X169.2
Outsourcing of information technology systems/
processes
1169.2
(Reserved)
2169.2
Automated teller machine interconnection
(deleted by M-2008-030 dated 12 September 2008)
3169.2
Automated teller machine interconnection
(deleted by M-2008-030 dated 12 September 2008)
X169.3
Outsourcing of other banking functions
xviii
X169.4
Service providers
X169.5
Review of subsisting outsourcing contracts
X169.6 - X169.10 (Reserved)
X169.11
Other banking services for subsidiaries, affiliates and
related companies
X169.12
Other banking services to other entities
X169.13 - X169.18 (Reserved)
X169.19
Penalties
SECTION
X170 Compliance System; Compliance Officer

X170.1
Compliance system
X170.2
Compliance officer
X170.3
Compliance risk
X170.4
Responsibilities of the board of directors and senior
management on compliance
X170.5
Status
X170.6
Independence
X170.7
Role and responsibilities of the compliance function
X170.8
Cross-border issues
X170.9
Outsourcing
SECTION
X171 Bank Protection

X171.1
Objectives
X171.2
Designation of security officer
X171.3
Security program
X171.4
Minimum security measures
X171.5
Reports
X171.6
Bangko Sentral inspection
X171.7
Common security service provision
X171.8
Sanctions
SECTION
X172 (Reserved)
SECTION
X173 Supervision by Risks
SECTION
X174 Market Risk Management
SECTION
X175 Liquidity Risk Management
SECTION
X176 Technology Risk Management

SECTION
(Reserved)
X196 Voluntary Liquidation

xix
X196.1
X196.2
X196.3 X196.8
Prior Monetary Board approval

Liquidation plan
X196.7 (Reserved)
Final liquidation report
SECTION
X197 (Reserved)
SECTION
X198 Insolvency or Receivership of Banks

X198.1
Definition of terms
X198.2
Prohibited acts
X198.3 - X198.8 (Reserved)
X198.9
Penalties and sanctions
SECTION
X199 General Provision on Sanctions
PART TWO - DEPOSIT AND BORROWING OPERATIONS

A. DEMAND DEPOSITS
SECTION
X201 Authority to Accept or Create Demand Deposits

X201.1
Prerequisites to accept or create demand deposits
for thrift banks/rural banks/cooperative banks
X201.2
Requirements for accepting demand deposits
X201.3
Sanctions
SECTION
X202 Temporary Overdrawings; Drawings Against Uncollected

Deposits
SECTION
SECTION
X203 Checks Without Sufficient Funds

X204 Current Accounts of Bank Officers and Employees
SECTION
X205 (Reserved)
SECTION
1205 (Reserved)
SECTION
2205 Check Clearing Rules for Thrift Banks Authorized to Accept

Demand Deposits
SECTION
3205 Check Clearing Rules for Rural Banks Who Are Members of the
Philippine Clearing House Corporation
SECTIONS X206 (Reserved)

xx
SECTION
X207 Check Clearing Operations During Public Sector Holidays
SECTIONS X208 - X212 (Reserved)

B. SAVINGS DEPOSITS
SECTION
X213 Servicing Deposits Outside Bank Premises
SECTION
X214 Withdrawals
SECTION
X215 Rental Deposits of Lessees
(Reserved)
SECTION
X221 Peso Savings Deposit Accounts of Embassy Officials
SECTION
X222 (Reserved)
C. NEGOTIABLE ORDER OF WITHDRAWAL ACCOUNTS
SECTION
X223 Authority to Accept Negotiable Order of Withdrawal Accounts

X223.1 Prerequisites to accept NOW accounts for thrift banks/
rural banks/cooperative banks
X223.2 Requirements for accepting NOW accounts
X223.3 Sanctions
SECTION
X224 Rules on Servicing NOW Accounts
SECTION
X225
Minimum Features
SECTION
X226
Clearing of NOW Accounts
(Reserved)
D. TIME DEPOSITS
SECTION
X231
Term of Time Deposits
SECTION
X232
Special Time Deposits
SECTION
X233
Certificates of Time Deposits

X233.1 Prerequisites to issue NCTDs for thrift banks/rural
banks/cooperative banks
X233.2 Requirements for issuing NCTDs
xxi
X233.3
X233.4
X233.5
X233.6
X233.7 X233.9
X233.10
X233.11
Minimum features
Insurance coverage
Desistance from issuing new NCTDs
Sanctions
X233.8 (Reserved)
Long-term negotiable certificates of time deposits
(Reserved)
Long-term non-negotiable tax-exempt certificates of
time deposit
E. DEPOSIT SUBSTITUTE OPERATIONS (QUASI-BANKING FUNCTIONS)

SECTION
X234 Scope of Quasi-Banking Functions

X234.1
Elements of quasi-banking
X234.2
Definition of terms and phrases
X234.3
Transactions not considered quasi-banking
X234.4
Pre-conditions for the exercise of quasi-banking
functions
X234.5
Certificate of authority from the Bangko Sentral
X234.6
Sale, discounting, assignment or negotiation by banks
of their credit rights arising from claims against the
BSP
SECTION
X235 Deposit Substitute Instruments

X235.1
Prohibition against use of acceptances, bills of
exchange and trust certificates
X235.2
Negotiation of promissory notes
X235.3
Minimum features
X235.4
Interbank loan transactions
X235.5
Delivery of securities
X235.6
Other rules and regulations governing the issuance
and treatment of deposit substitute instruments
X235.7 - X235.11 (Reserved)
X235.12
Repurchase agreements covering government
securities, commercial papers and other negotiable
and non-negotiable securities or instruments
SECTION
X236 Minimum Trading Lot and Minimum Term of Deposit Substitute
SECTION
X237 Money Market Placements of Rural Banks

X237.1
Definition of terms
X237.2
Conditions required on accepted placements not
covered by prohibition
X237.3
Sanctions
xxii
SECTION
X238 Without Recourse Transactions

X238.1
Delivery of securities
X238.2
Sanctions
X238.3
Securities custodianship operations
SECTION
X239 Issuance of Bonds

X239.1
Definition of terms
X239.2
Compliance with Securities and Exchange
Commission rules on registration of bond issues
X239.3
Notice to Bangko Sentral ng Pilipinas
X239.4
Minimum features
X239.5
Issuance of commercial papers
F. GOVERNMENT DEPOSITS
SECTION
X240
Statement of Policy
X240.1 Prior Monetary Board approval
X240.2 Banks which may accept government funds
X240.3 Prerequisites for the grant of authority to accept
deposits from the Government and government
entities
X240.4 Application for authority
X240.5 Limits on funds of the Government and government
entities that may be deposited with banks
X240.6 Liquidity floor
X240.7 Exempt transactions
X240.8 Reports
X240.9 Sanctions
X240.10 - X240.14 (Reserved)
X240.15 Acceptance by banks with internet banking facility
of payment of fees for account of government entities
SECTION
X241
(Reserved)
G. INTEREST
SECTION
X242
Interest on Deposits/Deposit Substitutes

X242.1 Time of payment of interest on time deposits/deposit
substitutes
X242.2 Treatment of matured time deposits/deposit substitutes
SECTION
X243
Disclosure of Effective Rates of Interest
(Reserved)
xxiii
H. RESERVES AGAINST DEPOSIT AND DEPOSIT SUBSTITUTE LIABILITIES

SECTION
X253
Accounts Subject to Reserves; Amounts Required

X253.1 Regular reserves against deposit and deposit substitute
liabilities
X253.2 Liquidity reserves
SECTION
X254
Composition of Reserves
X254.1 Allowable drawings against reserves
X254.2 Exclusion of uncleared checks and other cash items
X254.3 Interest income on reserve deposits
X254.4 Book entry method for reserve securities
SECTION
X255
Exemptions from Reserve Requirements
SECTION
X256
Computation of Reserve Position

X256.1 Measurement of reserve requirement
X256.5 Guidelines in calculating and reporting to the BSP the
required reserves on deposit substitutes evidenced by
repurchase agreements covering government securities
SECTION
X257
Reserve Deficiencies; Sanctions

X257.1 Chronic reserve deficiency; penalties
X257.2 Failure to cover overdrawings with the Bangko Sentral
X257.3 Payment of penalties on reserve deficiencies
SECTION
X258
Report on Compliance
(Reserved)
I. SUNDRY PROVISIONS ON DEPOSIT OPERATIONS

SECTION
X261
Booking of Deposits and Withdrawals

X261.1 Clearing cut-off time
X261.2 Definitions
X261.3 Booking of cash deposits
X261.4 Booking of non-cash deposits
X261.5 Booking of deposits after regular banking hours
X261.6 Other records required
X261.7 Notice required
SECTION
X262
Miscellaneous Rules on Deposits

X262.1 Specimen signatures, ID photos
xxiv
X262.2
X262.3
Insurance on deposits
Certification of compliance with Subsection 55.4 of
R.A. No. 8791
SECTION
X263
Service and Maintenance Fees

X263.1 Amendments to terms and conditions for the
imposition of service charges/fees
SECTION
X264
Unclaimed Balances
SECTION
X265
Acceptance, Encashment or Negotiation of Checks Drawn in

Favor of Commissioner/Collector of Customs
SECTION
X266
Deposit Pick-up/Cash Delivery Services

X266.1 Operation of armored cars
SECTION
1266
(Reserved)
SECTION
2266
(Reserved)
SECTION
3266
Qualifying Criteria Before a Rural/Cooperative Bank Engages in

Deposit Pick-up Services
SECTION
X267
Automated Teller Machines
J. BORROWINGS FROM THE BANGKO SENTRAL

SECTION
X268
Rediscounting Line
X268.1 Credit Information System
X268.2 Application procedures
X268.3 Approval/Renewal of the line
X268.4 Amount of line
X268.5 Term of the line
X268.6 - X268.9 (Reserved)
X268.10 Constitutional prohibition
SECTION
X269
Rediscounting Availments
X269.1 Eligibility requirements at the time of availment
X269.2 Eligible papers and collaterals
X269.3 Loan availment procedures
X269.4 Loan value
X269.5 Maturities
X269.6 Rediscount/Lending rates and liquidated damages
X269.7 Release of proceeds
xxv
X269.8 Repayments/remittance of collections/arrearages

X269.9 Prohibited transactions
X269.10 Monitoring and credit examination of borrowing
banks
X269.11 Penalties/sanctions
X269.12 Interlocking directorship/officership
SECTION
X270
Repurchase Agreements with the Bangko Sentral
SECTION
X271
Bangko Sentral Liquidity Window

X271.1 Nature of liquidity window
X271.2 Terms of credit
X271.3 Limit
SECTION
X272
Emergency Loans or Advances to Banking Institutions

X272.1 Nature of emergency loans or advances
X272.2 When an emergency loan or advance may be
availed of
X272.3 Allowable amount of emergency loan or advance
X272.5 Other documentary requirements
X272.6 Acceptable collaterals and their corresponding loan
values
X272.7 Manner and conditions of release
X272.8 Interest rates, liquidated damages, and penalties
X272.9 General terms and conditions
X272.10 Maturity/Conditions for renewals
X272.11 Remittance of collections/repayments/arrearages
X272.12 Default
SECTION
X273
Facility to Committed Credit Line Issuers

X273.1 Nature of special credit accommodations
X273.2 Conditions to access
X273.4 Ceiling
SECTION
X274
(Reserved)
SECTION
1274
(Reserved)
SECTION
2274
Countryside Financial Institutions Enhancement Program for

Thrift Banks (CFIEP) for Thrift Banks
SECTION
3274
Countryside Financial Institutions Enhancement Program for

Rural and Cooperative Banks
xxvi
SECTION
X275
Recording and Reporting of Borrowings
SECTION
X276
Rediscounting Window for Low-Cost Housing as Defined by the

Housing and Urban Development Coordinating Council
(HUDCC)
SECTION
X277
(Reserved)
SECTION
1277
Rediscounting Window Available to All Universal and

Commercial Banks for the Purpose of Providing Liquidity
Assistance to Investment Houses
SECTION
2277
Rediscounting Window Available to Thrift Banks for the Purpose

of Providing Liquidity Assistance to Support and Promote
Microfinance Programs
SECTION
3277
Rediscounting Window Available to Rural and Cooperative

Banks for the Purpose of Providing Liquidity Assistance to Support
and Promote Microfinance Programs
3277. 1 Eligibility requirements
3277. 2 Microcredit (MCR) line
3277. 3 Terms and conditions
3277. 4 Documentary requirements
3277. 5 Remittance of collections/payments/repayments
3277. 6 Reports required
3277. 7 Accounts verification
3277. 8 Sanctions
SECTION
X278
Enhanced Intraday Liquidity Facility (ILF)
(Reserved)
K. OTHER BORROWINGS
SECTION
X281
Borrowings from the Government

X281.1 Exemption from reserve requirement
SECTION
X282
Borrowings from Trust Departments or Investment Houses
SECTION
X283
(Reserved)
SECTION
1283
(Reserved)
SECTION
2283
Mortgage/Chattel Mortgage Certificates of Thrift Banks

xxvii
SECTION
3283
(Reserved)
SECTION
X284
(Reserved)
SECTION
1284
(Reserved)
SECTION
2284
(Reserved)
SECTION
3284
Borrowings of Rural Banks/Cooperative Banks

SECTION
X299
(Reserved)
General Provision on Sanctions
PART THREE - LOANS, INVESTMENTS AND SPECIAL CREDITS

SECTION
X301
Lending Policies
X301.1 (Reserved)
1301.1 Rules and regulations to govern the development and
implementation of banks internal credit risk rating
systems
2301.1 (Reserved)
3301.1 (Reserved)
X301.6 Large exposures and credit risk concentrations
SECTION
X302
Loan Portfolio and Other Risk Assets Review System

X302.1 Provisions for losses; booking
X302.2 Sanctions
A. LOANS IN GENERAL
SECTION
X303
Credit Exposure Limits to a Single Borrower

X303.1 Definition of terms
X303.2 Rediscounted papers included in loan limit
X303.3 Credit risk transfer
X303.4 Exclusions from loan limit
X303.5 Sanctions
X303.8 Limit for wholesale lending activities of government
banks
SECTION
X304
Grant of Loans and Other Credit Accommodations

xxviii
X304.1 General guidelines

X304.2 Purpose of loans and other credit accommodations
X304.3 Prohibited use of loan proceeds
X304.4 Signatories
X304.9 Policies on loans to non-immigrants and embassy
officials
SECTION
X305
Interest and Other Charges

X305.1 Rate of interest in the absence of stipulation
X305.2 Escalation clause; when allowable
X305.3 Floating rates of interest
X305.4 Accrual of interest earned on loans
SECTION
X306
Past Due Accounts

X306.1 Accounts considered past due
X306.2 Demand loans
X306.3 Renewals/extensions
X306.4 Restructured loans
X306.5 Write-off of loans as bad debts
X306.6 Writing-off microfinance loans as bad debts
X306.7 Updating of information provided to credit
information bureaus
SECTION
X307
Truth in Lending Act Disclosure Requirement

X307.2 Information to be disclosed
X307.3 Inspection of contracts covering credit transactions
X307.4 Posters
SECTION
X308
Amortization on Loans and Other Credit Accommodations
SECTION
X309
Non-Performing Loans
X309.1 Accounts considered non-performing; definitions
X309.2 Reporting requirement
SECTION
X310
(Reserved)
B. SECURED LOANS
SECTION
X311
Loans Secured by Real Estate Mortgages

X311.1 Loans secured by junior mortgage on real estate
X311.2 (Reserved)
1311.2 (Reserved)
xxix
2311.2
3311.2
X311.3
X311.4
1311.4
2311.4
3311.4
X311.5
(Reserved)
Eligible real estate collaterals on rural/cooperative
bank loans
Insurance on real estate improvements
(Reserved)
(Reserved)
Foreclosure by thrift banks
Foreclosure by rural/cooperative banks
Redemption of foreclosed real estate mortgage
SECTION
X312
Loans and Other Credit Accommodations Secured By Chattels

and Intangible Properties
SECTION
X313
Loans and Other Credit Accommodations Secured By Personal

Properties
SECTION
X314
Increased Loan Values and Terms of Loans for Home-Building
SECTION
X315
Loans Secured by Certificates of Time Deposit
(Reserved)
C. UNSECURED LOANS
SECTION
X319
Loans Against Personal Security

X319.1 General guidelines (deleted by Circular No. 622 dated
16 September 2008)
X319.2 Proof of financial capacity of borrower (deleted by
Circular No. 622 dated 16 September 2008)
X319.3 Signatories (deleted by Circular No. 622 dated
16 September 2008)
X319.4 - X319.6 (Reserved)
SECTION
X320
Credit Card Operations; General Policy

X320.2 Risk management system
X320.3 Minimum requirements
X320.5 Interest accrual on past due loans
X320.6 Finance charges
X320.7 Deferral charges
X320.8 Late payment/penalty fees
X320.9 Confidentiality of information
X320.10 Suspension, termination of effectivity and reactivation
xxx
X320.11
X320.12
X320.13
X320.14
X320.15
SECTION
X321
Inspection of records covering credit card transactions

Offsets
Handling of complaints
Unfair collection practices
Sanctions
(Reserved)
D. RESTRUCTURED LOANS
SECTION
X322
Restructured Loans; General Policy

X322.1 Definition; when to consider performing/nonperforming
X322.2 Procedural requirements
X322.3 Restructured loans considered past due
X322.4 Classification
(Reserved)
E. LOANS AND OTHER CREDIT ACCOMMODATIONS TO DIRECTORS,

OFFICERS, STOCKHOLDERS AND THEIR RELATED INTERESTS
SECTION
X326
General Policy
X326.1 Definitions
SECTION
X327
Transactions Covered
SECTION
X328
Transactions Not Covered

X328.1 Applicability to credit card operations
X328.2 - X328.4 (Reserved)
X328.5 Loans, other credit accommodations and guarantees
granted to subsidiaries and/or affiliates
SECTION
X329
Direct or Indirect Borrowings
SECTION
X330
Individual Ceilings
X330.1 Exclusions from individual ceiling
SECTION
X331
Aggregate Ceiling; Ceiling on Unsecured Loans, Other Credit

Accommodations and Guarantees
SECTION
X332
Exclusions from Aggregate Ceiling
SECTION
X333
Applicability to Branches and Subsidiaries of Foreign Banks

xxxi
SECTION
X334
Procedural Requirements
SECTION
X335
Reportorial Requirements
SECTION
X336
Sanctions
SECTION
X337
Waiver of Secrecy of Deposit
SECTION
X338
Financial Assistance to Officers and Employees

X338.1 Mechanics
X338.2 (Reserved)
1338.2 Funding by foreign banks
2338.2 (Reserved)
3338.2 (Reserved)
X338.3 Other conditions/limitations
SECTION
X339
Transitory Provisions
X339.1 - X339.3 (Reserved)
X339.4 Reportorial requirements
SECTION
X340
Applicability of DOSRI Rules and Regulations to Government

Borrowings in Govenment-Owned or -Controlled Banks
F. MANDATORY CREDITS
SECTION
X341
Agrarian Reform and Agricultural Credit

X341.2 Who may borrow; purposes
X341.3 Required allocation for agrarian reform and
agricultural credit in general
X341.4 Computation of loanable funds
X341.5 Allowable alternative compliance
X341.6 Syndicated type of agrarian reform credit/agricultural
credit
X341.7 Interest and other charges
X341.8 Unused agri-agra funds to be utilized for socialized
and low-cost housing
X341.9 Submission of reports
X341.10 - X341.11 (Reserved)
X341.12 Consolidated compliance
X341.13 - X341.14 (Reserved)
X341.15 Sanctions
xxxii
SECTION
X342
Mandatory Allocation of Credit Resources to Micro

Small and Medium Enterprises
X342.2 Period covered; prescribed portions of loan portfolio
to be allocated
X342.3 Eligible credit exposures
X342.4 Ineligible credit instruments
X342.5 Rights/remedies available to lending institutions not
qualified to acquire or hold lands of public domain
X342.6 Submission of reports
X342.7 Sanctions
X342.8 Disposition of penalties collected
X342.9 - X342.14 (Reserved)
X342.15 Accreditation guidelines for rural and thrift banks
under the SME Unified Lending Opportunities for
National Growth (SULONG)
G. SPECIAL TYPES OF LOANS
SECTION
X343
Interbank Loans
X343.1 Systems and procedures for interbank call loan
transactions
X343.2 Accounting procedures
X343.3 Settlement procedures for interbank loan transactions
SECTION
X344
Loans to Thrift/Rural/Cooperative Banks

X344.1 Loans under Section 12 of R.A. No. 7353, Section 10
of R.A. No. 7906 and Article 108, R.A. No. 6938
X344.2 Loans under Section 14 of R.A. No. 7353
(Reserved)
SECTION
X347
Standby Letters of Credit

X347.1 Domestic standby letters of credit
X347.2 Ceiling
X347.3 Reports
SECTION
X348
Committed Credit Line for Commercial Paper Issues

X348.1 Who may grant line facility
X348.2 Ceilings
X348.3 Terms; conditions; restrictions
X348.4 Reports to the Bangko Sentral
X348.5 Loan limit
xxxiii
SECTION
X349
Agriculture and Fisheries Projects with Long Gestation Periods

X349.2 Grace period
X349.3 Responsibility of lending banks
X349.4 Past due loans
X349.5 Non-performing loans

SECTION
X361
(Reserved)
Microfinancing Loans
X361.1 Definition
X361.2 Loan limit; amortization; interest
X361.3 Credit information exemption
X361.4 Exemptions from rules on unsecured loans
X361.5 Housing microfinance loan
X361.6 - X361.9 (Reserved)
X361.10 Sanctions
SECTIONS X362
- X364
SECTION
Loans to Barangay Micro Business Enterprises

X365.1 Credit delivery
X365.2 Interest on loans to BMBEs
X365.3 Amortization of loans to BMBEs
X365.4 Waiver of documentary requirements
X365.5 Incentives to participating financial institutions
X365.6 Credit guarantee
X365.7 Record
X365.8 Reports to Congress
X365.9 Administrative sanctions
SECTIONS
X365
X366 - X375
(Reserved)
(Reserved)
H. EQUITY INVESTMENTS
SECTION
X376
Scope of Authority
X376.1 Conditions for investment in equities
X376.2 - X376.4 (Reserved)
X376.5 Guidelines for major investments
SECTION
X377
Financial Allied Undertakings
SECTION
X378
Limits on Investment in the Equities of Financial Allied

Undertakings
xxxiv
SECTION
X379
Investments in Venture Capital Corporations

X379.1 Requirements for investors
X379.2 Equity investments of venture capital corporations
X379.3 Business name of venture capital corporations
X379.4 Reportorial requirements; examination by Bangko
Sentral
X379.5 Interlocking directorships and/or officerships
SECTION
X380
Non-Financial Allied Undertakings
SECTION
X381
(Reserved)
SECTION
1381
Investments in Non-Allied or Non-Related Undertakings

1381.1 Non-allied undertakings eligible for investment by
universal banks
1381.2 Limits on investments in non-allied enterprises
1381.3 Report on outstanding equity investments in and
outstanding loans to non-allied enterprises
SECTION
X382
Investments in Subsidiaries and Affiliates Abroad

X382.1 Application for authority to establish or acquire
subsidiaries and affiliates abroad
X382.2 Requirements for establishing subsidiaries or affiliates
abroad
X382.3 Conditions for approval of application
X382.4 - X382.7 (Reserved)
X382.8 Investment of a bank subsidiary in a foreign subsidiary
SECTION
X383
Other Limitations and Restrictions
SECTION
X384
(Reserved)
SECTION
X385
Sanctions
I. (RESERVED)
(Reserved)
J . OTHER OPERATIONS
SECTION
X388
Purchase of Receivables and Other Obligations

X388.1 Yield on purchase of receivables
X388.2 Purchase of receivables on a without recourse basis
X388.3 Purchase of commercial paper
xxxv
X388.4
X388.5
Reverse repurchase agreements with Bangko Sentral

Investment in debt and readily marketable equity
securities
SECTION
X389
(Reserved)
SECTION
1389
Guidelines on the Investment of UBs and KBs in Credit-Linked

Notes, Structured Products and Securities Overlying
Securitization Structures
SECTION
2389
(Reserved)
SECTION
3389
(Reserved)
SECTIONS X390 X392
(Reserved)
K. MISCELLANEOUS PROVISIONS
SECTION
X393
Loans-to-Deposits Ratio
X393.1 Statement of policy
X393.2 Regional loans to deposits ratio
X393.3 Computation of the regional loans to deposits ratio
X393.4 Lagged computation (Deleted by Circular No. 613
dated 18 June 2008)
X393.5 Real and other properties acquired as part of
compliance. (Deleted by Circular No. 613 dated 18
June 2008)
SECTION
X394
Acquired Assets in Settlement of Loans

X394.1 Posting
X394.2 Booking
X394.3 Sales contract receivable
X394.4 - X394.9 (Reserved)
X394.10 Transfer/sale of non-performing assets to a special
purpose vehicle or to an individual
X394.11 - X394.14 (Reserved)
X394.15 Joint venture of banks with real estate development
companies
SECTION
X395
Credit Policies of Government-Owned Corporations
SECTION
X396
Parcellary Plans on Crop Loans
SECTION
X397
(Reserved)
xxxvi
SECTION
1397
Limits on Real Estate Loans of Universal Banks/Commercial

Banks
SECTION
2397
(Reserved)
SECTION
3397
(Reserved)
SECTION
X398
Debt Service Limit on Local Government Borrowings
SECTION
X399
PART FOUR - TRUST, OTHER FIDUCIARY BUSINESS AND

INVESTMENT MANAGEMENT ACTIVITIES
SECTION
X401
Statement of Principles
SECTION
X402
Scope of Regulations
SECTION
X403
Definitions
A. TRUST AND OTHER FIDUCIARY BUSINESS

SECTION
X404
Authority to Perform Trust and Other Fiduciary Business

X404.1 Application for authority to perform trust and other
fiduciary business
X404.2 Required capital
X404.3 Prerequisites for engaging in trust and other fiduciary
business
X404.4 Pre-operating requirements
SECTION
1404
(Reserved)
SECTION
2404
Grant of Authority to Engage in Limited Trust Business to Thrift

Banks
SECTION
3404
Grant of Authority to Engage in Limited Trust Business to Rural

Banks
SECTION
X405
Security for the Faithful Performance of Trust and Other Fiduciary

Business
X405.1 Basic security deposit
X405.2 Eligible securities
X405.3 Valuation of securities and basis of computation of
the basic security deposit requirement
xxxvii
X405.4
X405.5
X405.6
X405.7
X405.8
X405.9
Compliance period; sanctions

Reserves against peso-denominated common trust
funds and trust and other fiduciary accounts - others
Composition of reserves
Computation of reserve position
Reserve deficiencies; sanctions
Report of compliance
SECTION
X406
Organization and Management

X406.1 Organization
X406.2 Composition of trust committee
X406.3 Qualifications of committee members, officers and
staff
X406.4 Responsibilities of administration
X406.5 - X406.8
(Reserved)
X406.9 Outsourcing services in trust departments
SECTION
X407
Non-Trust, Non-Fiduciary and/or Non-Investment Management

Activities
SECTION
X408
Unsafe and Unsound Practices

X408.9 Sanctions
SECTION
X409
Trust and Other Fiduciary Business

X409.1 Minimum documentary requirements
X409.2 Lending and investment disposition
X409.3 Transactions requiring prior authority
X409.4 Ceilings on loans
X409.5 Funds awaiting investment or distribution
X409.6 Other applicable regulations on loans and
investments
X409.7 Operating and accounting methodology
X409.8 Tax-exempt individual trust accounts
X409.9 Living trust accounts
X409.10 - X409.15 (Reserved)
X409.16 Qualification and accreditation of private banks acting
as trustee on any mortgage or bond issuance by any
municipality, government-owned or controlled
corporation, or any body politic
X409.17 Trust fund of pre-need companies
SECTION
X410
Unit Investment Trust Funds/Common Trust Funds

X410.1 Definitions
X410.2 Establishment of a unit investment trust fund
xxxviii
X410.3
X410.4
X410.5
X410.6
X410.7
X410.8
X410.9
X410.10
X410.11
X410.12
X410.13
X410.14
Administration of a unit investment trust fund

Relationship of trustee with unit investment trust fund
Operating and accounting methodology
Plan rules
Minimum disclosure requirements
Exposure limit to single person/entity
Allowable investments and valuation
Other related guidelines on valuation of allowable
investments
Unit investment trust fund administration support
Counterparties
Foreign currency-denominated unit investment trust
funds
Exemptions from statutory and liquidity reserves,
single borrower's limit, DOSRI
SECTION
X411
Investment Management Activities

X411.1 Minimum documentary requirements
X411.2 Minimum size of each investment management
account
X411.3 Commingling of funds
X411.4 Lending and investment disposition
X411.5 Transactions requiring prior authority
X411.6 Title to securities and other properties
X411.7 Ceilings on loans
X411.8 Operating and accounting methodology
X411.9 Tax-exempt individual investment management
accounts
SECTION
X412
FCDU/EFCDU Trust Accounts

X412.1 Banks with trust authority
X412.2 Banks without trust authority
X412.3 Additional deposit for the faithful performance of trust
duties
X412.4 Liquidity requirement for FCDU/EFCDU common
trust funds
X412.5 Applicability of rules and regulations
SECTION
X413
Required Surplus
B. INVESTMENT MANAGEMENT ACTIVITIES
SECTION
X414
Authority to Perform Investment Management

X414.1 Prerequisites for engaging in investment management
activities
xxxix
X414.2
Pre-operating requirements
SECTION
X415
Security for the Faithful Performance of Investment Management

Activities
X415.2 Eligible securities
X415.3 Valuation of securities and basis of computation of
the basic security deposit requirement
X415.4 Compliance period; sanctions
SECTION
X416
Organization and Management
SECTION
X417
Non-Investment Management Activities
SECTION
X418
Unsound Practices
SECTION
X419
Conduct of Investment Management Activities
SECTION
X420
Required Surplus
C. GENERAL PROVISIONS
SECTION
X421
Books and Records
SECTION
X422
Custody of Assets
SECTION
X423
Fees and Commissions
SECTION
X424
Taxes
SECTION
X425
Reports Required
X425.1 To trustor, beneficiary, principal
X425.2 To the Bangko Sentral
X425.3 Post-Bond Flotation Report
SECTION
X426
Audits
X426.1
X426.2
X426.3
Internal audit
External audit
Board action
SECTION
X427
Authority Resulting from Merger or Consolidation
SECTION
X428
Receivership
xl
SECTION
X429
Surrender of Trust or Investment Management License
SECTIONS X430 X440

SECTION
X441
Securities Custodianship and Securities Registry Operations

X441.2 Applicability of this regulation
X441.3 Prior Bangko Sentral approval
X441.5 Pre-qualification requirements for a securities
custodian/registry
X441.6 Functions and responsibilities of a securities custodian
X441.7 Functions and responsibilities of a securities registry
X441.8 Protection of securities of the customer
X441.9 Independence of the registry and custodian
X441.10 Registry of scripless securities of the Bureau of the
Treasury
X441.11 Confidentiality
X441.12 Compliance with anti-money laundering laws/
regulations
X441.15 X441.28 (Reserved)
X441.29 Sanctions
SECTIONS X442 X498

SECTION
X499
(Reserved)
(Reserved)
Sanctions
PART FIVE - FOREIGN CURRENCY DEPOSIT SYSTEM AND

OTHER OPERATIONS IN FOREIGN CURRENCY
SECTION
X501
Foreign Currency Deposit System

X501.3 Authorized transactions
X501.4 Foreign currency cover requirements
X501.5 Foreign currency deposit with the Bangko Sentral
X501.6 Currency composition of the cover
X501.7 Secrecy of deposits
X501.8 Numbered accounts
X501.9 Withdrawability and transferability of deposits
X501.10 Insurance coverage
xli
X501.11
X501.12
X501.13
X501.14
X501.15
X501.16
X501.17
X501.18
Rates of interest
Eligibility as collateral
Taxes
Exemption from court order or process
Inapplicability of the Usury Law
Accounting
Supervision
Sanctions
SECTION
X502
Other Transactions in Foreign Currency

X502.1 Mobile foreign exchange booths
X502.2 Off-site automatic multi-currency money changers
SECTION
X503
Recognition of Positions Arising from Banks Foreign Currency

Options in the Computation of Net Open FX Position
SECTIONS X504 X530
(Reserved)
SECTION
X531
Securities Lending
SECTION
X532
Repurchase Agreements Involving Foreign CurrencyDenominated Government Securities
SECTIONS X533 X563
(Reserved)
SECTION
X564
Transfer of Undivided Profits/(Losses) from FCDU/EFCDU to RBU

Books
SECTION
X565
Conversion to Peso Loans/ROPA and Transfer to RBU of FCDU/

EFCDU Loans/ROPA
SECTIONS X566 X598

SECTION
X599
(Reserved)
PART SIX - MISCELLANEOUS

A. OTHER OPERATIONS
SECTION
X601
Open Market Operations

X601.1 Repurchase agreements with Bangko Sentral
X601.2 Reverse repurchase agreements with Bangko Sentral
X601.3 Settlement procedures on the purchase and sale of
government securities under repurchase agreements
with the Bangko Sentral
xlii
X601.4 - X601.5 (Reserved)

X601.6 BSP trading windows and services during public
sector holidays
SECTION
SECTION
X602 Derivatives
X602.1 Generally authorized derivatives activities
X602.2 Activities requiring additional derivatives authority
X602.3 Intra-group transactions
X602.4 Accounting guidelines
X602.5 Reporting requirements
X602.6 Sanctions
X602.7 - X602.13 (Reserved)
X602.14 Forward and swap transactions
X602.16 Documentation
X602.17 Tenor/maturity and settlement
X602.18 Cancellations, roll-overs or non-delivery of FX forward
contracts
X602.19 Non-deliverable forward contracts with non-residents
X602.20 Compliance with anti-money laundering rules
X602.22 - X602.25 (Reserved)
X602.26 Sanctions
1602
Forward Contracts With Non-Residents
2602
(Reserved)
3602
(Reserved)
SECTION
X603
Clearing Operations
SECTION
X604
Collection of Customs Duties/Taxes/Levies and Other Revenues

X604.1 Coverage
X604.2 Collection and reporting of internal revenue taxes
X604.3 Collection and reporting of customs duties and import
processing fees
X604.4 Collection and reporting of export/premium duties
X604.5 Remittances thru debit/credit advices
X604.6 Reconciliation of revenue collections
X604.7 Penalty for willful delay on the reporting of
collections/remittances
X604.8 Fines for delayed reports/remittances of collections
X604.9 Liquidity floor requirement on revenue collections
xliii
X604.10 Collection of import duties at the time of opening of

letters of credit
SECTION
X605
Miscellaneous Operations
X605.1 Collection and paying agents of the Social Security
System
X605.2 Commercial banks as depository of rediscounting
proceeds
X605.3 Collection agents of PhilHealth
B. SUNDRY PROVISIONS
SECTION
X606
Bank Premises and Other Fixed Assets

X606.1 Appreciation or increase in book value
X606.2 Ceiling on total investments
X606.3 Reclassification of real and other properties acquired
as bank premises
X606.4 Lease of bank premises (deleted by Cir. 525 dated
04 April 2006)
X606.5 - X606.9 (Reserved)
X606.10 Batas Pambansa Blg. 344 An Act to Enhance the
Mobility of Disabled Persons by Requiring Certain
Buildings, Institutions, Establishments and Public
Utilities to Install Facilities and Other Devices
SECTION
X607
Bank Advertisements
SECTION
X608
Assessment Fees on Banks

X608.1 Annual fees on banks
SECTION
X609
Collection of Fines and Other Charges from Banks

X609.1 Guidelines on the imposition of monetary penalties
X609.2 Payment of fines by banks
X609.3 Cost of checks and documentary stamps
X609.4 Check/demand draft payments to the Bangko Sentral
of thrift, cooperative and rural banks
SECTION
X610
Philippine and Foreign Currency Notes and Coins

X610.2 Treatment and disposition of counterfeit Philippine
and foreign currency notes and coins
X610.3 Reproduction and/or use of facsimiles of legal tender
Philippine currency notes
X610.4 Reproduction and/or use of facsimiles of legal tender
Philippine currency coins
xliv
X610.5
X610.6
X610.7
X610.8
SECTION
X621
X624
(Reserved)
Electronic Banking Services

X621.1 Application
X621.2 Pre-screening of applicants
X621.3 Approval in principle
X621.4 Documentary requirements
X621.5 Conditions for Monetary Board approval
X621.6 Pending applications
X621.7 Exemption
X621.8 Transitory provision
X621.9 - X621.11 (Reserved)
X621.12 Sanctions
X621.13 Outsourcing

SECTION
Clean note policy

Replacement and redemption of mutilated or unfit
legal tender Philippine currency notes and coins
Treatment of Philippine currency notes and coins
called in for replacement
Sanctions
(Reserved)
Consumer Protection for Electronic Banking
(Reserved)
SECTION
1631
Financial Products of Allied Undertakings or Investment House

Units of Banks
1631.1 Statement of principles
1631.2 Prior Monetary Board approval
1631.3 Minimum documentary requirements
1631.4 Financial ratios and other related requirements
1631.5 Promotional materials; stationeries and other
paraphernalia
1631.6 Contracts/Information to be disclosed
1631.7 Training
1631.8 Other requirements
1631.9 - 1631.10 (Reserved)
1631.11 Sanctions
SECTION
2631
(Reserved)
xlv
SECTION
3631
(Reserved)
SECTION
X632
Prohibition on the Sale of Foreign-Based Mutual Funds by Banks
SECTION
X633
(Reserved)
SECTION
1633
Credit-linked Notes and Similar Credit Derivative Products
SECTION
2633
(Reserved)
SECTION
3633
(Reserved)
SECTIONS X634 - X635 (Reserved)

SECTION
1635
Banks Exposures to Structured Products

1635.1 Statement of policy
1635.2 Definition
1635.3 Qualified banks
1635.4 Capital treatment of banks exposures to structured
products
1635.5 BSP approval not required
SECTION
2635
(Reserved)
SECTION
3635
(Reserved)
SECTION
X636
(Reserved)
SECTION
1636
EFCDUs Investments in Foreign Currency Denominated

Structured Products
1636.2 Scope
1636.3 Other conditions
1636.4 Capital treatment of EFCDUs
1636.6 Sanctions
SECTION
2636
(Reserved)
SECTION
3636
(Reserved)
(Reserved)
xlvi
SECTION
1648
Investments in Securities Overlying Securitization Structures

1648.2 Definition
1648.3 Qualified banks
1648.4 Capital treatment of investments in securities
overlying securitization structures
SECTION
2648
(Reserved)
SECTION
3648
(Reserved)
(Reserved)
SECTION
1650
Offering in the Philippines of Products by Parent Bank and

Branches Abroad of the Parent Bank
SECTION
2650
(Reserved)
SECTION
3650
(Reserved)
SECTION
X651
Asset-Backed Securities
X651.2 Authority
X651.3 Management oversight
X651.4 Minimum documents required
X651.5 Minimum features of ABS
X651.6 Disclosures
X651.7 Conveyance of assets
X651.8 Representations and warranties
X651.9 Third party review
X651.10 Originator and seller
X651.11 Trustee and issuer
X651.12 Servicer
X651.13 Underwriter
X651.14 Guarantor
X651.15 Credit enhancement
X651.16 Clean-up call
X651.17 Prohibited activities
X651.18 Amendment
X651.19 Miscellaneous provision
X651.20 Report to BSP
(Reserved)
xlvii
SECTION
SECTIONS
X654
Recognition and Derecognition of Domestic Credit Rating

Agencies for Bank Supervisory Purposes
X654.2 Minimum eligibility criteria
X654.3 Pre-qualification requirements
X654.4 Inclusion in BSP list
X654.5 Derecognition of credit rating agencies
X654.6 Recognition of PhilRatings as domestic credit rating
agency for bank supervisory purposes.
X655 - X657
(Reserved)
SECTION
X658
Examination by the BSP
SECTION
X659
Internationally Accepted Credit Rating Agencies

X659.6 Recognition of Fitch Singapore Pte., Ltd as
international credit rating agency for bank supervisory
purposes
SECTION
X660
Disclosure of Remittance Charges and Other Relevant

Information
SECTIONS
SECTION
X661 X690
X691
Anti-Money Laundering Regulations

X691.1 Minimum guidelines for fund transfers and
correspondent banking account opening and
customer identification
X691.2 - X691.4 (Reserved)
1691.4 Electronic monitoring systems for money laundering
2691.4 (Reserved)
3691.4 (Reserved)
X691.9 Sanctions and penalties

SECTION
X695
X699
(Reserved)
Valid Identification (ID) Cards for Financial Transactions

SECTION
(Reserved)
(Reserved)
xlviii
List of Appendices
08.12.31
LIST OF APPENDICES
No.
SUBJECT MATTER
Guidelines for the Issuance of a Universal Banking Authority
Prescribed Application Forms for the Entry of Foreign Banks
Guidelines for the Issuance of a Universal Banking Authority for Branches

of Foreign Banks
Format of Affidavit on Transfer of Stocks
Standard Pre-Qualification Requirements for the Grant of Banking Authorities
5a
Prerequisites for the Grant of Authority to Operate FCDU
5b
Qualification Requirements for a Bank/NBFI Applying for Accreditation to

Act as Trustee on any Mortgage or Bond Issued by any Municipality,
Government-Owned or Controlled Corporation, or any Body Politic
Reports Required of Banks
Certain Information Required from Banks
Documents/Information on Organizational Structure and Operational

Policies
(Reserved)
10
Format of Self Assessment and Certification on Compliance with Rules and

Regulations on Bank Protection
11
Pro-Forma Order of Withdrawal for NOW Accounts
12
Samples of Standardized Instruments Evidencing Deposit Substitute

Liabilities
13
New Rules on the Registration of Long-Term Commercial Papers
Manual of Regulations for Banks
Appendices Page 1
List of Appendices
08.12.31
No.
SUBJECT MATTER
14
New Rules on Registration of Short-Term Commercial Papers
15
List of Reserve - Eligible and Non-Eligible Securities
16
Implementing Guidelines of the Countryside Financial Institutions

Enhancement Program
17
Rules Governing Issuance of Mortgage/Chattel Mortgage Certificate by Thrift

Banks
18
Guidelines in Identifying and Monitoring Problem Loans and Other Risk

Assets and Setting Up of Allowance for Probable Losses
19
Format of Disclosure Statement on Loan/Credit Transaction
20
Abstract of Truth in Lending Act (Republic Act No. 3765)
21
Agreement for the Enhanced Interbank Call Loan Funds Transfer System
21a
Settlement Procedures for Interbank Loan Transactions and Purchase and

Sale of Government Securities Under Repurchase Agreements with the
Bangko Sentral
21b
Enhanced Intraday Liquidity Facility
22
List of Non-Allied Undertaking where UBs may Invest in Equities
23
Credit Priority Classification
24
Sample Investment Management Agreement
25
Risk Management Guidelines for Derivatives
26
Sales and Marketing Guidelines for Derivatives
26a
Sample Risk Disclosure Statement for Derivatives Activiies
27
Accounting Guidelines For Derivatives (Incorporated in X602.5)
28
Clearing Procedures
Appendices Page 2
List of Appendices
08.12.31
No.
SUBJECT MATTER
28a
Clearing Operations Between Regional Clearing Center and the Manila

Clearing Center (Tarlac, Tarlac Used As Sample)
29
Procedures on Collection of Fines From Banks
30
Prescribed Format Memorandum of Understanding
31
Implementing Guidelines for Thrift Banks Authorized to Accept Demand

Deposits and Rural Banks who are Members of the Philippine Clearing
House Corporation
32
Illustrations when a Director, Officer and Stockholder (DOS) shall Waive

the Secrecy of Deposits
33
Classification, Accounting Procedures, Valuation and Sales and Transfers

of Investments in All Debt Securities and Marketable Equity Securities
33a
Establishing the Market Benchmarks/Reference Prices and Computation

Method Used to Mark-to-Market Debt and Marketable Equity Securities
34
Guidelines on the Use of Scripless (Ross) Securities as Security Deposit for

the Faithful Performance of Trust Duties
35
Pro-forma Payment Form
36
Suggested Gestation/Grace Periods for Agriculture and Fisheries Projects
37
Basic Guidelines in Establishing Banks
38
Revised Guidelines for the Establishment of Cooperative Banks

Annex A - Instructions for Directors and Officers of Proposed Cooperative
Banks
39
Settlement of Interbank Transactions vis-a-vis Covering Reserve

Requirement/Deficiency of Banks DDA with BSP
40
Guidelines Governing the Rediscounting of Housing Loan Papers of

Qualified Banks Under HUDCC Program
41
Minimum Criteria for Accreditation of Participating Financial Institutions

(PFIs) In Government Banks Wholesale Lending Program
42
Deed of Undertaking for the Issuance of Redeemable Preferred Shares
Appendices Page 3
List of Appendices
08.12.31
No.
SUBJECT MATTER
43
Guidelines to Govern the Selection, Appointment and the Reporting

Requirement for External Auditors of Banks
44
Implementing Rules and Regulations of Republic Act No. 6848 (The Islamic
Bank Charter)
45
Notes on Microfinance
46
Guidelines to Incorporate Market Risk in the Risk-Based Capital Adequacy

Framework
Annex A - Requirements for the Use of Internal Models to Measure Market
Risk
46a
Market Risk Capital Treatment for Dollar-Linked Peso Notes
46b
Instructions for Accomplishing the Report on Computation of the Adjusted

Risk-Based Capital Adequacy Ratio Covering Combined Credit Risk and
Market Risk (For Universal Banks and Commercial Banks With Expanded
Derivatives Authority)
46c

Market Risk (For Universal Banks and Commercial Banks with Expanded
Derivatives Authority but Without Options Transactions)
46d

Market Risk (For Universal Banks and Commercial Banks Without Expanded
Derivatives Authority)
46e
Procedures to be Observed by Universal and Commercial Banks Applying

for BSP Recognition of their Own Internal Models for Calculating Market
Risk Capital
47
Guidelines for the Establishment and Administration/Management of Sinking

Fund for the Redemption of Redeemable Private Preferred Shares
48
Activities which may be Considered Unsafe and Unsound Banking Practices
49
Certification of Compliance with Section 55.4 of Republic Act No. 8791
50
Guidelines on Retention and Disposal of Records of Rural and

Cooperative Banks
Appendices Page 4
List of Appendices
08.12.31
No.
SUBJECT MATTER
51
Format Certification on FCDU Lending to RBU
51a
Sample Computation on FCDU Lending to RBU
52
Revised Implementing Rules and Regulations R.A. No. 9160, as Amended

by R.A. No. 9194
52a
Anti-Money Laundering Regulations

Annex A - AMLC Resolution No. 292
Annex A-1 - AMLC Resolution No. 10
Annex B
- Customer Due Diligence for Banks and Non-Bank
Financial Intermediaries Performing Quasi-Banking
Functions (NBQBs)
Annex B-1 - Geeral Identification Requirements
Annex C
- General Guide to account Opening and Customer
Identification
Annex D - AMLC Resolution No. 02
52b
Minimum Guidelines for Fund Transfers
52c
Minimum Guidelines for Correspondent Banking Account Opening and

Customer Identification
53
Certification of Compliance with Anti-Money Laundering Regulations
54
Details on the Computation of Quarterly Interest Payments Credited to the

Demand Deposit Accounts of Banks Legal Reserve Deposits with BSP
55
SME Unified Lending Opportunities for National Growth (SULONG) Bank

Accreditation Application for Rural and Thrift Banks Eligibility and
Documentary Requirements
56
Transfer/Sale of Non-Performing Assets to a Special Purpose Vehicle or to

an Individual
56a
Accounting Guidelines on the Sale of Non-Performing Assets to Special

Purpose Vehicles and to Qualified Individuals for Housing Under The
Special Purpose Vehicle (SPV) Act of 2002
56b
Significant Timelines Relative to the Implementation of R.A. No. 9182, also

known as "Special Purpose Vehicle Act", as Amended by R.A. No. 9343
Appendices Page 5
List of Appendices
08.12.31
No.
SUBJECT MATTER
57
Circular No. 402 Revised Guidelines on the Flotation of Bonds by Local

Government Units (LGUs) [Without National Government Guarantee]
58
Guidelines and Minimum Documentary Requirements for Foreign

Exchange (FX) Forward and SWAP Transactions
59
Conversion/Transfer of FCDU Loans to RBU
60
Rules and Regulations on Common Trust Funds
61
Checklist of BSP Requirements in the Submission of Financial Audit Report

(FAR), Annual Audit Report (AAR) and Reports Required under Appendix 43
Annex A - Pro-Forma Comparative Analysis
62
Quarterly Investment Disclosure Statement
62a
Risk Disclosure Statement
63
Implementation Plans Under the New International Capital Standards as

Contained in the Basel Committee on Banking Supervision (BCBS)
Document International Convergence of Capital Measurement and Capital
Standards
63a
Qualifying Capital Under the Risk Based Capital Adequacy Framework

Annex A - Step-up Calculation
63b
Risk-Based Capital Adequacy Framework for the Philippine Banking System
63b-1
Guidelines on the Capital Treatment of Banks' Holdings of ROP Global

Bonds Paired with Warrants
63b-2
Guidelines on the Use of the Standardized Approach in Computing the

Capital Charge for Operational Risks
64
BSP Rules of Procedure on Administrative Cases Involving Directors and

Officers of Banks
65
Format Certification
66
Regulatory Requirements in Investing in Credit-Linked Notes, Structured

Products and Securities Overlying Securitization Structures by UBs and KBs
Appendices Page 6
List of Appendices
08.12.31
No.
SUBJECT MATTER
66a
Guidelines on the Accounting Treatment for Investments in Credit-Linked

Notes and Other Structured Products
67
The Guidelines for the Imposition of Monetary Penalty for Violations/

Offenses with Sanctions Falling Under Section 37 of R.A. No. 7653 on
Banks, Directors and/or Officers
Annex A Aggravating and Mitigating Factors to be Considered in the
Imposition of Penalty
68
Implementation of the Delivery by the Seller of Securities to the Buyer or to

his Designated Third Party Custodian
Annex A - Template of Letter to Investor
68a
Disposition of Compliance Issues on Appendix 68
68b
Delivery of Government Securities to the Investor's Principal Securities

Account with the Registry of Scripless Securities
Annex A - MOA between BTr and GSED
Annex B - Revised Investor's Undertaking
69
Prompt Corrective Action Framework
70
Consumer Protection for Electronic Banking

Annex A - Automated Teller Machine (ATM) Safety Measures
Annex B - Internet and Wireless Banking Security Measures
Annex C - Electronic Banking Consumer Awareness Program
Annex D - Disclosure Requirements
71
Guidelines for the Change in the Mode of Compliance with the Liquidity
Reserve Requirement
Annex A - Debit/Credit Authority Format
72
Guidelines on Supervision by Risk
73
Guidelines on Market Risk Management
74
Guidelines on Liquidity Risk Management
75
Guidelines on the Technology Risk Management
76
Authorization Form for Querying the BSP Watchlist Files for Screening
Applicants and Confirming Appointments of Directors and Officials
Appendices Page 7
List of Appendices
08.12.31
No.
SUBJECT MATTER
77
Financial Reporting Package
78
Guidelines for Trust Departments' Placements in the SDA Facility of BSP

Annex 1 - Notice of Placement of funds in BSP's SDA facility
Annex 2 - Confirmation from the Treasury Services Groups
78a
SDA Placements of Trust Departments/Entities as Agent for Tax-Exempt

Institutions (TEI) and Accounts
Annex 1 - Certification from the Trust Department
79
Guidelines in Determining Compliance with Ceilings on Equity Investments
80
Guidelines and Procedures Governing Currency Deposits and Withdrawal

of Banks for Credit to and Debit from their Demand Deposit Accounts with
the BSP
81
Appraisal and Loan Valuation Framework for Rights-Based Secure Tenure

Arrangements as Collateral Substitutes
82
Format Certification on Deposit/Cash Delivery Services
83
Basic Standards in the Administration of Trust, Other Fiduciary and

Investment Management Accounts
84
Guidelines for Days Declared as Public Sector Holidays
85
Illustrative Accounting Entries
86
Guidelines on the Availment of USD Denominated Repurchase Agreement

Facility with the BSP
Appendices Page 8
X101
05.12.31
PART ONE
ORGANIZATION, MANAGEMENT AND ADMINISTRATION
A.
CLASSIFICATIONS AND POWERS

OF BANKS
Section X101 Classifications, Powers

and Scope of Authorities of Banks. The
following are the classifications, powers and
scope of authorities of banks, as well as the
prerequisites for the grant of banking
authorities.
a. Classifications of banks. Banks are
classified into the following subject to the
power of the Monetary Board to create other
classes or kinds of banks:
(1) Universal banks (UBs);
(2) Commercial banks (KBs);
(3) Thrift banks (TBs), as defined in
Republic Act (R.A.) No. 7906, which shall
be composed of: (a) savings and mortgage
banks, (b) stock savings and loan associations,
and (c) private development banks;
(4) Rural banks (RBs), as defined in
R. A. No. 7353;
(5) Cooperative banks (Coop Banks), as
defined in R. A. No. 6938; and
(6) Islamic banks (IBs), as defined in
R.A. No. 6848.
b. Powers and scope of authorities
The following are the powers and scope of
authorities of banks.
(1) UBs. A UB shall have the authority
to exercise, in addition to the powers and
services authorized for a KB as enumerated
in Item b(2) and those provided by other
laws, the following:
(a) the powers of an investment house
(IH) as provided under existing laws;
(b) the power to invest in non-allied
enterprises;
(c) the power to own up to one
hundred percent (100%) of the equity in a
TB, an RB, a financial allied enterprise, or a
non-financial allied enterprise; and
(d) in case of publicly-listed UBs, the

power to own up to one hundred percent
(100%) of the voting stock of only one
(1) other UB or KB.
A UB may perform the functions of an
IH either directly or indirectly through a
subsidiary IH; in either case, the
underwriting of equity securities and
securities dealing shall be subject to
pertinent laws and regulations of the
Securities and Exchange Commission
(SEC): Provided, That if the IH functions are
performed directly by the UB, such
functions shall be undertaken by a separate
and distinct department or other similar
unit in the UB: Provided, further, That a
UB cannot perform such functions both
directly and indirectly through a subsidiary.
(2) KBs. In addition to the general
powers incident to corporations and those
provided in other laws, a KB shall have the
authority to exercise all such powers as may
be necessary to carry on the business of
commercial banking, such as accepting
drafts and issuing letters of credit;
discounting and negotiating promissory
notes, drafts, bills of exchange, and other
evidences of debt; accepting or creating
demand deposits; receiving other types of
deposits and deposit substitutes; buying
and selling foreign exchange and gold or
silver bullion; acquiring marketable bonds
and other debt securities; and extending
credit, subject to such rules as the Monetary
Board may promulgate. These rules may
include the determination of bonds and
other debt securities eligible for investment,
the maturities and aggregate amount of
such investment.
It may also exercise or perform any or
all of the following:
Part I - Page 1
X101
05.12.31
(a) invest in the equities of allied

enterprises as provided in Sections 31 and
32 of R.A. No. 8791;
(b) purchase, hold and convey real
estate as specified under Sections 51 and
52 of R.A. No. 8791;
(c) receive in custody funds,
documents and valuable objects;
(d) act as financial agent and buy and
sell, by order of and for the account of their
customers, shares, evidences of indebtedness
and all types of securities;
(e) make collections and payments for
the account of others and perform such
other services for their customers as are not
incompatible with banking business;
(f) upon prior approval of the Monetary
Board, act as managing agent, adviser,
consultant or administrator of investment
management/advisory/consultancy
accounts;
(g) rent out safety deposit boxes; and
(h) engage in quasi-banking functions.
(3) TBs. In addition to the powers
provided in other laws, a TB may perform
any or all of the following services:
(a) grant loans, whether secured or
unsecured;
(b) invest in readily marketable bonds
and other debt securities, commercial
papers and accounts receivable, drafts, bills
of exchange, acceptances or notes arising
out of commercial transactions;
(c) issue domestic letters of credit;
(d) extend credit facilities to private and
government employees;
(e) extend credit against the security of
jewelry, precious stones and articles of similar
nature, subject to such rules and regulations
as the Monetary Board may prescribe;
(f) accept savings and time deposits;
(g) rediscount paper with the Land
Bank of the Philippines (LBP), Development
Bank of the Philippines (DBP), and other
government-owned or-controlled corporations;
(h) accept foreign currency deposits as
provided under R.A. No. 6426, as amended;
Part I - Page 2
(i) act as correspondent for other

financial institutions;
(j) purchase, hold and convey real
estate as specified under Sections 51 and
52 of R.A. No. 8791; and
(k) offer other banking services as
provided in Section 53 of R.A. No. 8791.
With prior approval of the Monetary
Board, and subject to such guidelines as
may be established by it, TBs may also
perform the following services:
(l) open current or checking accounts;
(m) engage in trust, quasi-banking
functions and money market operations;
(n) act as collection agent for
government entities, including but not
limited to, the Bureau of Internal Revenue
(BIR), Social Security System (SSS) and the
Bureau of Customs (BOC);
(o) act as official depository of national
agencies and of municipal, city or
provincial funds in the municipality, city
or province where the TB is located;
(p) issue mortgage and chattel
mortgage certificates, buy and sell them for
its own account or for the account of others,
or accept and receive them in payment or
as amortization of its loan; and
(q) invest in the equity of allied
undertakings.
(4) RBs. In addition to the powers
provided in other laws, an RB may perform
any or all of the following services:
(a) extend loans and advances
primarily for the purpose of meeting the
normal credit needs of farmers, fishermen
or farm families as well as cooperatives,
merchants, private and public employees;
(b) accept savings and time deposits;
(c) act as correspondent of other
financial institutions;
(d) rediscount paper with the LBP, DBP
or any other bank, including its branches
and agencies. Said banks shall specify the
nature of paper deemed acceptable for
rediscount, as well as the rediscount rate
to be charged by any of these banks;
X101
05.12.31
(e) act as collection agent;

(f) offer other banking services as
provided in Section 53 of R.A. No. 8791.
With prior approval of the Monetary
Board, an RB may perform any or all of the
following services:
(g) accept current or checking
accounts: Provided, That such RB has net
assets of at least P5.0 million;
(h) accept NOW accounts;
(i) act as trustee over estates or
properties of farmers and merchants;
(j) act as official depository of
municipal, city or provincial funds in the
municipality, city or province where it is
located;
(k) sell domestic drafts; and
(l) invest in allied undertakings.
(5) Coop Banks. A Coop Bank shall be
organized primarily to provide financial and
credit services to cooperatives and may
perform any or all of the services offered
by RBs.
(6) IBs. In addition to the general
powers incident to corporations and those
provided in other laws, as well as in
Circular No. 105 (Appendix 44), insofar as
they are not inconsistent or incompatible
with the provisions of R.A. No. 6848, an IB
may perform any or all of the following
services:
(a) open savings accounts for
safekeeping or custody with no
participation in profit and losses except
unless otherwise authorized by the account
holders to be invested;
(b) accept investment account
placements and invest the same for a term
with the IBs funds in Islamically permissible
transactions on participation basis;
(c) accept foreign currency deposits
from banks, companies, organizations and
individuals, including foreign governments;
(d) buy and sell foreign exchange;
(e) act as correspondent of banks and
institutions to handle remittances or any
fund transfers;
(f) accept drafts and issue letters of

credit or letters of guarantee, negotiate notes
and bills of exchange and other evidence
of indebtedness under the universally
accepted Islamic financial instruments;
(g) act as collection agent insofar as the
payment orders, bills of exchange or other
commercial documents are exclusive of riba
or interest prohibitions;
(h) provide financing with or without
collateral by way of leasing, sale and
leaseback, or cost plus profit sales
arrangement;
(i) handle storage operations for goods
or commodity financing secured by
warehouse receipts presented to the bank;
(j) issue shares for the account of
institutions and companies assisted by the
bank in meeting subscription calls or
augmenting their capital and/or fund
requirements as may be allowed by law;
(k) undertake various investments in all
transactions allowed by the Islamic Sharia
in such a way that shall not permit the
haram (forbidden), nor forbid the halal
(permissible);
(l) act as an official government
depository, or its branches, subdivisions and
instrumentalities and of government-owned
or -controlled corporations, particularly
those doing business in the autonomous
region;
(m) issue investment participation
certificates, muquaradah (non-interestbearing bonds), debentures, collaterals and/
or the renewal and refinancing of the
same, with the approval of the Monetary
Board to be used by the IB in its financing
operations for projects that will promote the
economic development primarily of the
Autonomous Region;
(n) carry out financing and joint
investment operations by way of mudarabh
purchasing for others on a cost-plus
financing arrangement, and invest funds
directly in various projects or through the
use of funds whose owners desire to invest
Part I - Page 3
X101 - X101.6
05.12.31
jointly with other resources available to the

IB on a joint mudarabh basis; and
(o) invest in equities of the following
allied undertakings:
(1) Warehousing companies;
(2) Leasing companies;
(3) Storage companies;
(4) Companies engaged in the
management of mutual funds but not in the
mutual funds themselves; and
(5) Such other similar activities as the
Monetary Board has declared or may
declare as appropriate from time to time,
subject to existing limitations imposed by law.
X101.1 Expansion of banking
authorities. (Superseded by Circular 271
dated 8 Jan. 2001)
X101.2 Prerequisites for the grant
of a universal banking authority
a. Compliance with guidelines. A
domestic bank seeking authority to operate
as a UB shall submit an application to the
appropriate supervising and examining
department (SED) of the BSP. The applicant
shall comply with the guidelines for the
issuance of a UB authority and shall submit
all the documentary requirements
enumerated in Appendix 1.
b. Public offering of bank shares. A
domestic bank applying for a UB authority
shall, as a condition to the approval of its
application, make a public offering of at
least ten percent (10%) of the required
minimum capital and this condition must
be complied with before it can be granted
the license for authority to operate as a UB.
The term public offering shall mean the
offer to sell equity shares to the public.
Public shall refer to all prospective
stockholders, excluding the banks
directors, shareholders owning twenty
percent (20%) or more of the banks
subscribed capital stock, together with those
of their relatives within the fourth degree of
consanguinity or affinity, and corporations
controlled or affiliated with them.
Part I - Page 4
A bank whose shares of stock are

already listed in the Philippine Stock
Exchange (PSE) at the time of filing of its
application for UB authority shall be
deemed to have complied with the public
offering requirement. Likewise, an
applicant bank may opt to have its shares
listed in the PSE directly instead of passing
through the process of public offering. In
either case, at least ten percent (10%) of
the applicant banks capital stock should
be held by public stockholders before it can
be granted the license for authority to
operate as a UB.
c. Listing of bank shares in the stock
exchange. Domestic banks granted a UB
license, existing or new, must list their
shares in the PSE within three (3) years:
Provided, That in the case of new UBs, the
three (3) year period shall be reckoned from
the date the license to operate as a UB was
granted. In the case of existing UBs which
have not listed their shares in the exchange,
the three (3) year period lapsed on 27
December 1998.
The guidelines on public offering and
listing of bank shares are enumerated in
Appendix 1.
X101.6 Conditions for the grant of
authority to convert into a lower category
a. That the bank must have complied
with the end-2000 minimum capital
requirement and other laws/regulations
applicable to the lower bank category into
which it is converting. For this purpose,
the term capital shall be as defined under
Sec. X106;
b. That the bank immediately upon
receipt of notice of approval of conversion
shall not engage in nor renew transactions
under authorities not associated with those
allowed for the lower bank category into
which it is converting and within six (6)
months from date of receipt of notice of
approval of its application for conversion,
X101.6 - X102.1
05.12.31
the bank shall phase-out all inherent

powers and activities under special
authorities not normally associated to the
lower bank category into which it is
converting: Provided, That a TB (previously
authorized by the Monetary Board to
accept demand deposits) may be allowed
to retain such authority when converting
into an RB but may clear checks only
through a correspondent bank and shall not
be allowed to participate directly in the
(PCHC) and the BSP check clearing
operations: Provided, further, That for
failure to comply with these requirements,
the following monetary and non-monetary
penalties shall be imposed reckoned from
the set deadline until the bank has fully
complied with the said requirements
(1) Monetary penalties
From UB to KB
P30,000/day
From KB to TB
15,000/day
From TB to RB
Within Metro Manila
P 5,000/day
Outside Metro Manila
500/day
(2) Non-monetary penalties

(a) Suspension of branching privileges;
(b) Suspension of declaration of cash
dividends;
(c) Restriction on lending to affiliates;
(d) Denial of access to BSP
rediscounting facilities;
(e) Suspension of authority to accept
or handle government deposits;
(f) Suspension of authority to engage
in derivatives activities (for a UB converting
into a KB); and
(g) Suspension of authority to invest in
allied undertakings.
c. That a bank which has not
corrected as of date of application the major
findings/violations noted in its latest
examination shall submit upon application
a Memorandum of Understanding that it
shall correct the same within a period of
six (6) months from date of receipt of notice
of approval of its application, otherwise,
the same monetary and non-monetary

penalties mentioned in Item b above shall
be imposed;
d. That the bank shall submit the
pertinent amended Articles of Incorporation
and By-Laws duly registered with the SEC
within six (6) months from date of receipt
of notice of approval of its application;
e. That the bank shall fully disclose its
new status in its signage, financial
statements and stationeries; and
f. That the bank shall start operation
in the lower category into which it is
converting after approval by the SEC of the
banks amended Articles of Incorporation
and By-Laws, its compliance with all the
conditions of approval of the conversion
and the issuance by the BSP of a certificate
of authority to operate.
The same conditions and sanctions
mentioned in Items a to f above shall
apply to all banks which have downgraded
or with approved downgrading prior to
13 March 2000: Provided, That the
penalties mentioned in Items b and c
above shall be reckoned from their
respective prescribed deadlines or within
six (6) months from 13 March 2000, if no
such deadline is prescribed.
Sec. X102 Basic Guidelines in Establishing
Banks. In establishing a new banking
organization and a Coop Bank, the basic
guidelines shown in Appendix 37 and
Appendix 38, respectively, shall be observed.
X102.1 Suspension of the grant of
new banking licenses on the establishment
of new banks. Pending completion of a
study, there shall be an indefinite
moratorium on the establishment of new
banks, except in cities and municipalities
where there are no existing banking offices.
The moratorium shall apply to all
applications for establishment of new banks,
including pending ones received prior to
16 August 1999.
Part I - Page 5
X102.1 - X102.2
08.12.31
However, approved but not yet opened

banks shall be exempted from the
moratorium. Requests for extension of the
period within which to open approved but
not yet opened banks shall, however, be
evaluated on a case-to-case basis
depending, among others, on the banks
substantial compliance with the preoperating requirements.
In the case of KBs, the following rules
shall govern:
a. No new KB shall be established
within three (3) years from 13 June 2000
which is the date of effectivity of R.A. No.
8791 or until 12 June 2003. The
moratorium as mandated by said law
covers only KBs classified and defined as
such under Sections 3.2(b) and 29 of R. A.
No. 8791 as well as in Item b.2 of Sec.
X101 without prejudice, however, to
existing or future moratoriums on other
types of bank as has been or may be
declared by the Monetary Board.
b. The moratorium under Section 8 of
R.A. No. 8791 shall cover all applications
for issuance of new commercial banking
licenses as well as upgrading or conversion
of old banking licenses into commercial
banking licenses, the organization and
incorporation by foreign banks of new
commercial banking subsidiaries and any
and all other transactions that may result in
the issuance of new commercial banking
licenses.
c. All such pending applications as of
13 June 2000, including those which have
already been decided but with any incident
thereto still unresolved or are on
reconsideration or appeal, shall not be
further acted upon by the BSP and shall be
returned to the applicant banks without
prejudice to the resubmission or re-filing
thereof upon expiration of the moratorium
at the option of the applicant banks. No
such application shall be considered as
automatically re-submitted or re-filed upon
expiration of the moratorium.
Part I - Page 6
d. The moratorium under Section 8 of

R. A. No. 8791 shall not be applicable to:
(1) acquisition or purchase by foreign
banks of up to one hundred percent (100%)
of the voting stock of existing domestic KBs;
(2) the transfer of license of an existing
KB to another corporation, subject to prior
approval of the Monetary Board;
(3) new KBs resulting out of mergers
or consolidations where at least one (1) of
the banks involved in such merger or
consolidation is a KB; and
(4) downgrading or refocusing of UBs
into KBs.
X102.2 Partial lifting of general
moratorium on the licensing of new thrift
banks and rural banks. The general
moratorium on the licensing of new TBs
and RBs is partially lifted to allow the entry
of microfinance-oriented banks.
For this purpose, a microfinanceoriented bank is a bank that provides
financial services and caters primarily to the
credit needs of the basic or disadvantaged
sectors such as farmer-peasants, artisanal
fisherfolk, workers in the formal sector and
migrant workers, workers in the informal
sectors, indigenous peoples and cultural
communities, women, differently-abled
persons, senior citizens, victims of
calamities and disasters, youth and students,
children, urban poor and low income
households for their microenterprises and
small businesses so as to enable them to
raise their income levels and improve their
living standards. Microfinance loans are
granted on the basis of the borrowers cash
flow and are typically unsecured.
The guidelines on the establishment
of a microfinance-oriented bank are as
follows:
a. Microfinance-oriented banks may
be established on a very selective basis,
preferably in places not fully served by
existing RBs or in areas not fully serviced
by microfinance-oriented banks, subject to
X102.2 - X102.3
08.12.31
the following additional criteria (in addition

to standard licensing requirements):
(1) That the microfinance-oriented
bank to be established shall either be a TB
or an RB;
(2) That the capital of the
microfinance-oriented banks to be
established should be owned by private
persons, multilateral entities or a
combination thereof;
(3) That in the case of an RB to be
established as a microfinance bank, the
minimum paid-in capital shall be P5.0
million or the applicable existing
capitalization requirement for a new RB,
whichever is higher. The capitalization
requirement under existing regulations
shall apply to TBs;
(4) That the organizers must have the
capacity to engage in microfinancing,
which may be indicated by the following:
(a) At least twenty percent (20%) of the
paid-in capital of the proposed bank must
be owned by persons or entities with track
record in microfinancing.
(b) Majority of the members of the
board of directors have experience in
microfinancing with at least one (1) member
having actual banking experience.
(c) The proposed bank must have as a
minimum, an adequate loan tracking
system that allows daily monitoring of loan
releases, collection and arrearages, and
any restructuring and refinancing.
(5) In addition to the requirements for
the establishment of banks in Appendix 37,
the application for authority to establish a
microfinance-oriented bank must be
accompanied by the following documents:
(a) A vision and mission statement
with clear expression of the commitment
to reach low-income clients.
(b) A written manual of operations,
which shall include the administrative and
credit program systems and procedures.
The Manual must be consistent with the
core principles, characteristics and features
of microfinance indicated in Sec. X361.
(6) At least fifty percent (50%) of the

banks gross loan portfolio shall at all times
consist of microfinance loans as defined in
Sec. X361.
b. The requirement that the president,
chief operating officer or general manager
of a TB or RB must have at least two (2)
years experience in banking and/or finance
may be substituted with microfinance
experience in cases of officers of a
microfinance organization applying for
authority to establish, or convert into a TB
or RB: Provided, That the concerned officer
is a college graduate.
c. Subject to the standard branching
requirements, microfinance-oriented banks
are also exempted from the general
moratorium on the establishment of bank
branches, under Sec. X151. After one (1)
year of profitable operations, a
microfinance-oriented bank may apply for
establishment of a branch but the Monetary
Board may require additional capital to be
infused for every branch in addition to the
minimum capital of the TB/RB.
d. Existing microfinance organizations
applying for authority to establish, or
convert into a TB or RB may also be
allowed to convert their existing branches/
offices into branches of the bank proposed
to be established by simultaneously
applying for authority for the purpose.
However, the standard requirements for the
establishment of branches, particularly the
capitalization requirement, have to be
complied with. Moreover, there must be a
proof that the area is not fully served by
any existing RB.
(As amended by Circular No. 624 dated 13 October 2008)
X102.3 Conversion of microfinanceoriented thrift banks/rural banks

a. Microfinance-oriented TBs and RBs
are disallowed from converting to regular
TBs and RBs.
b. Microfinance-oriented branches of
regular TBs and RBs may convert into
regular branches, five (5) years after the start
Part I - Page 7
X102.3 - X106
08.12.31
of the branchs operations, subject to the

submission of the following:
(1) Certification signed by the
president or officer of equivalent rank
that:
(a) At least seventy percent (70%) of
deposits generated by the branch to be
established shall be actually lent out to
microfinance borrowers; and
(b) The microfinance loans of said
branch shall at all times be fifty percent
(50%) of its gross loan portfolio
are no longer feasible due to changes in
market condition in the locality where it is
located. The certification shall be supported
by a market study citing, among others,
changes in demographic, social, and
economic factors; and
(2) Certified true copy of the
resolution of the banks board of directors
authorizing the conversion of the
microfinance-oriented branch into a
regular branch.
(CL-2008-075 dated 28 November 2008)
Sec. X103 Certificate of Authority to

Register1. The SEC shall not register the
articles of incorporation of any bank, or any
amendment thereto, unless accompanied
by a certificate of authority issued by the
Monetary Board, under its seal. The
certificate shall not be issued unless the
Monetary Board is satisfied from the
evidence submitted that:
a. All requirements of existing laws
and regulations to engage in the business
for which the applicant is proposed to be
incorporated have been complied with;
b. The public interest and economic
conditions, both general and local, justify
the authorization; and
c. The amount of capital, the
financing, organization, direction and
administration, as well as the integrity and
responsibility of the organizers and
administrators reasonably assure the safety
of deposits and the public interest.
Likewise, the SEC shall not register the

by-laws of any bank, or any amendment
thereto, unless accompanied by a
certificate of authority from the BSP.
(As amended by CL-2008-078 dated 15 December 2008)
Secs. X104 - X105 (Reserved)

B. CAPITALIZATION
Sec. X106 Bank Capital. The following
provisions shall govern the capital
requirements for banks.
The term capital shall be
synonymous to unimpaired capital and
surplus, combined capital accounts and
net worth and shall refer to the total of the
unimpaired paid-in capital, surplus and
undivided profits, less:
a. Unbooked valuation reserves and
other capital adjustments as may be
required by the BSP;
b. Total outstanding unsecured credit
accommodations, both direct and indirect,
to directors, officers, stockholders, and
their related interests (DOSRI) granted by
the bank proper;
c. Unsecured loans, other credit
accommodations and guarantees granted
to subsidiaries and affiliates;
d. Deferred income tax;
e. Appraisal increment reserve
(revaluation reserve) as a result of
appreciation or an increase in the book
value of bank assets;
f. Equity investment of a bank in
another bank or enterprise, whether foreign
or domestic, if the other bank or enterprise
has a reciprocal equity investment in the
investing bank, in which case, the
investment of the bank or the reciprocal
investment of the other bank or enterprises,
whichever is lower; and
g. In the case of RBs/Coop Banks, the
government counterpart equity, except
those arising from conversion of arrearages
under the BSP rehabilitation program.
See SEC. Circular No. 3 dated 16 February 2006.
Part I - Page 8
X106 - X106.1
07.12.31
With respect to Item b hereof, the

provisions in Subsec. X326.1 shall apply
except that in the definition of stockholders
in said Subsection, the qualification that his
stockholdings, individually and/or together
with his related interest in the lending bank
should at least amount to two percent (2%)
or more of the total subscribed capital stock
of the bank shall not apply for the purpose
of this Item.
(As amended by Circular No. 560 dated 31 January 2007)
X106.1 Minimum capitalization. The

minimum capital of banks shall be as
follows:
a. UBs - P5.4 billion each
b. KBs - P2.8 billion each
c. TBs (1) With head offices within Metro
Manila - P400.0 million each; and
(2) With head offices outside Metro
Manila - P64.0 million each.
d. RBs (1) An RB may be established in any
city or municipality, except in the cities of
Manila, Kalookan, Quezon, Pasay,
Mandaluyong, Makati, Paraaque,
Malabon, Navotas and San Juan; and in the
cities of Cebu and Davao, with minimum

capital requirements as follows:
(a) In first, second and third class cities
and in first class municipalities - P8.0
million each;
(b) In fourth, fifth and sixth class cities
and in second, third, and fourth class
municipalities - P4.8 million each; and
(c) In fifth and sixth class municipalities
- P3.2 million each.
(2) Existing RBs within the excepted
cities and municipalities shall maintain
the following minimum
capital
requirements:
(a) In the cities of Manila, Kalookan,
Quezon, Pasay, Mandaluyong, Makati,
Paraaque, Malabon, Navotas and San Juan
- P32.0 million each; and
(b) In the cities of Cebu and Davao P16 million each.
e. Coop Banks Coop Banks that may be established shall
have a minimum authorized capital of:
(1) P200.0 million for national Coop
Banks divided into such number of shares
with a minimum par value of P1,000 per
share, with a private paid-in capital of at
least P20.0 million; and
(Next page is Part I - Page 9)
Part I - Page 8a
X106.1 - X106.2
05.12.31
(2) P20.0 million for local Coop Banks

divided into such number of shares, with a
private paid-in capital of at least P1.25
million, except as follows:
(a) P20.0 million minimum private
paid-in capital for Coop Banks to be
established in Metro Manila;
(b) P10.0 million minimum private paidin capital for Coop Banks to be established
in the cities of Cebu and Davao; and
(c) P5.0 million minimum private paidin capital for Coop Banks to be established
in other cities: Provided, however, That for
the first Coop Bank organized in the
province, although it will be located in a
city, the minimum private paid-in capital
shall be P1.25 million.
The foregoing minimum capital
requirements for UBs, KBs, TBs, and RBs
shall immediately apply to applications filed
after 12 March 1998.
X106.2 Capital build-up program
a. UBs and KBs which are existing, or
which are newly authorized but not yet
operating, or banks from which completed
applications to operate under an UB/KB
authority have been received as of 12
March 1998 but pending action by the BSP,
are hereby allowed the following time
frame within which to meet the above
minimum capital requirement:
(1) P4.5 billion for UBs and P2.0
billion for KBs on or before 24 December
1998;
1999; and
2000:*Provided, That for the P 4.95 billion/
P2.4 billion and P5.4 billion/P2.8 billion
minimum capital, UBs/KBs shall submit
to the BSP a capital build-up program for
this purpose within three (3) months from
12 March 1998.
b. TBs which are existing, or which

are newly authorized but not yet operating,
or persons from whom completed
applications to establish TBs have been
received as of 12 March 1998 but pending
action by the BSP, are allowed the
following time frame within which to meet
the above minimum capital requirement:
(1) With head office within Metro Manila:
-
P250 million on or before 24 December 1998;

P325 million on or before 31 December 1999; and
P400 million on or before 31 December 2000;* and
(2) With head office outside Metro Manila:

-

P64 million on or before 31 December 2000:*
Provided, That for the P325.0 million,

P400.0 million, P52.0 million and P64.0
million minimum capital, TBs shall submit
to the BSP a capital build-up program for
this purpose within three (3) months from
12 March 1998.
c. RBs which are existing, or which
are newly authorized but not yet operating,
or persons from whom completed
applications to establish RBs have been
received as of 12 March 1998 but pending
action by the BSP, are allowed the
following time frame within which to
meet the above minimum capital
requirement:
(1) In the cities of Manila, Kalookan,
Quezon, Pasay, Mandaluyong, Makati
and Paraaque and in the municipalities
of Malabon, Navotas and San Juan:
-

P32 million on or before 31 December 2000;
(2) In the cities of Cebu and Davao:

-

P16 million on or before 31 December 2000;*
(3) In first, second and third class cities

and first class municipalities:
-
P6.5 million on or before 31 December 1999; and

P8.0 million on or before 31 December 2000;*
(4) In fourth, fifth and sixth class cities

and second, third and fourth class
municipalities:
-

P4.8 million on or before 31 December 2000;*
*The target level of capitalization prescribed for banks as of end-2000 has been set aside. The level of required capitalization
as of end-2000 shall be the same as that prescribed as of end-1999.
Part I - Page 9
X106.2 - X106.3
07.12.31
(5) In fifth and sixth class municipalities:

-

P3.2 million on or before 31 December 2000:*
Provided, That RBs shall submit to the BSP a

capital build-up program for this purpose
within three (3) months from 12 March 1998:
Provided, further, That if the prescribed
minimum capital necessitates an increase
in the authorized capital stock, the RB
shall cause the corresponding
amendments to its articles of
incorporation and submit the same to the
BSP together with its capital build-up
program.
The deadline of the second phase (1st
phase for TBs outside Metro Manila and
RBs) of the capital build-up program of
banks is extended from 31 December 1999
to 31 January 2000.*
For banks that have executed a
Memorandum of Understanding (MOU)
with the BSP, in compliance with Subsec.
X106.3, the following guidelines shall
apply:
(a) For banks with capital deficiency
but with capital-to-risk assets ratio within
the minimum prescribed and with no
weaknesses (i.e., high past due loans,
DOSRI violations, etc.), the MOU may be
set aside: Provided, That the bank will be
able to comply with the minimum capital
requirements as herein prescribed; and
(b) For banks with capital deficiency
but with significant weaknesses (i.e.,
deficiency in capital-to-risk assets ratio,
liquidity problems, high past due loans,
etc.), the MOU, as executed, shall continue
to be in full force and in effect until such
time that it shall be amended by mutual
consent of the parties; waived and/or
terminated by the BSP.
Non-compliance with the above capital
requirements shall subject the bank to
sanctions/penalties provided under existing
banking laws and BSP rules and regulations.
X106.3
Memorandum
of
Understanding; Prompt Corrective Action
Program; sanctions. The following are the
policy guidelines and the corresponding
sanctions for banks failing to comply with
the minimum capital requirements and the
corresponding sanctions:
a. Memorandum of Understanding;
Prompt Corrective Action Program
(1) The adoption of the Memorandum
of Understanding (format shown in
Appendix 30) between the bank and the
BSP; and
(2) The implementation of the Prompt
Corrective Action Program as detailed below:
(a) For undercapitalized banks of up
to twenty percent (20%) (i) Require the bank to execute a
Memorandum of Understanding (MOU)
with the BSP, binding itself, among others,
to implement a viable capital restoration
plan acceptable to the BSP within thirty (30)
days from date of notice;
(ii) Require the intensified monitoring
by BSP of banks financial condition; and
(iii) BSP to conduct a special
examination of the bank.
(b) For significantly undercapitalized
banks of up to sixty percent (60%) (i) BSP to call a meeting with bank
directors/principal officers to discuss and
agree on remedial measures to be taken and
the timetable for implementation;
(ii) Intensify monitoring by the
Supervision and Examination Sector (SES)
of the banks financial condition;
(iii) BSP to conduct immediately an
extensive on-site examination;
(iv) Require the bank to execute an
MOU with the BSP, binding itself, among
others, to implement a viable capital
restoration plan acceptable to the BSP
within thirty (30) days from date of
discussion. Among the options to be
considered are:
*The target level of capitalization prescribed for banks as of end-2000 has been set aside. The level of required capitalization
as of end-2000 shall be the same as that prescribed as of end-1999.
Part I - Page 10
X106.3
07.12.31
- disposition of a majority
shareholders interest;
- sale of assets;
- issuance of additional stock/capital
infusion;
- sale of bank to highest bidder
subject to terms set by BSP; and
- merger (assisted or unassisted) or
consolidation with a stronger bank;
(v) Require the creation of a separate unit
in the bank remedial asset management
group which will take care of banks bad
assets and make progress reports to the BSP;
(vi) Appoint an external auditor at the
expense of the bank to perform a financial
or operational audit under the terms of
reference provided by BSP; and
(vii) If necessary, appoint a consultant
specialist to diagnose the problem and to
recommend the appropriate remedial
measures (i.e., introduce new profit
opportunities, improve internal and
accounting controls, etc.) to restore banks
viability.
(c) For critically undercapitalized
banks of more than sixty percent (60%) (i) Place the bank under Prompt
Corrective Action Unit since this requires
more than normal bank supervision;
(ii) BSP to call a meeting with banks
principal shareholders/directors;
(iii) BSP to conduct immediately an
extensive on-site examination;
(iv) BSP to conduct an intensive
monitoring of banks financial condition;
(v) Require the bank to execute an
MOU with the BSP, binding itself, among
others, to implement a viable capital
restoration plan acceptable to the BSP
within thirty (30) days from date of meeting.
Among the options to be considered are:
- disposition of a majority
shareholders interest;
- sale of assets;
- issuance of additional stock/capital
infusion;
sale of bank to highest bidder

subject to terms set by BSP; and
merger (assisted or unassisted) or
consolidation with a stronger bank;
(vi) Create a BSP Ad Hoc Committee to
oversee the implementation of the action plan;
(vii) Require the creation of a separate
unit in the bank remedial asset
management group to take care of banks bad
assets and make progress reports to the BSP;
(viii)Appoint an external auditor at the
expense of the bank to perform financial or
operational audit under the terms of
reference of the BSP;
(ix) If banks condition further
deteriorates to the extent that depositors
and creditors protection is at stake and
its capital base is already deficient by
more than eighty percent (80%), appoint/
assist a resident examiner/comptroller or
conservator, if legally feasible, to oversee/
take over management of the bank; and
(x) If necessary, appoint a consultant
specialist to diagnose the problem and to
recommend the appropriate remedial
measures (i.e., introduce new profit
opportunities, improve internal and
accounting controls, etc.) to restore banks
viability.
b. Sanctions. The following sanctions
for non-compliance with the minimum
capital requirements are hereby prescribed:
(1) Monetary penalty
For delayed or non-submission of the
capital build-up program reckoned from the
time bank was notified in writing up to the
time the program has been submitted, per
banking day of delay, a monetary penalty of:
Type of Bank
Amount of Penalty
(a) UBs/ KBs

P
10,000.00
(b) TBs
5,000.00
(c) RBs
1,000.00
(2) Non-monetary penalty
Non-monetary penalties shall depend
on the degree of capital deficiency incurred
by the bank as follows:
Part I - Page 11
X106.3
07.12.31
Penalty
TBs
RBs/
Coop
Banks
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
UBs/
KBs
(a) Up to twenty percent (20%) - Suspension of authority to

invest in non-allied undertakings (for UBs only)
- Suspension of authority to
invest in allied undertakings
- Suspension of securities
and dealership functions
(for UBs only)
- Suspension of branching
privileges
- Suspension of declaration
of cash dividends
(b) Up to forty percent (40%) - Suspension of authority

to invest in non-allied undertakings (for UBs only)
invest in allied undertakings
(for UBs only)
- Restrictions on lending
to affiliates
privileges
- Suspension of declaration of cash dividends
- Restrictions on overall
loan growth/investments
(new loans to the extent
of collections only)
- Denial of access to BSP
rediscounting facilities
- Suspension of authority
to accept or create demand
deposits or operate
NOW accounts
accept or handle government deposits
NA
(c) Up to sixty percent (60%) - Suspension of authority to

invest in allied undertaking
(for UBs only)
privileges
of cash dividends
- Restrictions on overall
loan growth/investments
(new loans to the extent of
collections only)
- Restrictions on lending to
affiliates
Part I - Page 12
NA
NA
NA
NA
NA

engage in quasi-banking
activities
engage in derivatives
activities
- Suspension of FCDU/
EFCDU activities
- Suspension of trust operations
accept or create demand
deposits or operate
NOW accounts
NA
NA
NA
NA
9
NA
9
9
NA
9
NA
NA
NA
NA
NA
NA
NA
NA
9
NA
NA
NA
NA
(d) Up to eighty percent (80%) - Suspension of authority to

9
- Suspension of authority
9
to invest in allied undertakings
9
(for UBs only)
9
privileges
9
of cash dividends
9
NA
accept or create demand
deposits or operate NOW
accounts
9
9
engage in quasi-banking activities
9
engage in derivatives
activities
- Suspension of FCDU/
9
EFCDU activities
- Suspension of trust operations 9
- Suspension of international
9
banking activities
- Suspension of lending
9
activities
- Suspension of issuance
NA
of domestic L/Cs
(e) More than eighty percent (80%) - Suspension of clearing

privileges
- Suspension of granting
of bonuses/profit-sharing
not covered by existing
contracts or By-Laws
- Cease and desist
X106.4 - X111.2
06.12.31
X106.4 Prompt corrective action

framework. A bank may be subject to
Prompt Corrective Action (PCA) whenever
any or all of the following conditions obtain:
(1) When either of the Total Risk-Based
Ratio [otherwise known as Capital
Adequacy Ratio (CAR)], Tier 1 Risk-Based
Ratio, or Leverage Ratio (total capital/total
assets) falls below ten percent (10%), six
percent (6%) and five percent (5%),
respectively, or such other minimum levels
that may be prescribed for the said ratios
under relevant regulations, and/or the
combined capital account falls below the
minimum capital requirement prescribed
under Subsec. X106.1;
(2) The Capital Adequacy, Asset
Quality, Management, Earnings, Liquidity
and Sensitivity to Market Risk (CAMELS)
composite rating is less than three 3 or a
Management component rating of less than
three 3; and
(3) A serious supervisory concern has
been identified that places a bank at morethan-normal risk of failure in the opinion
of the Director of the examination
department concerned, which opinion is
confirmed by the Monetary Board. Such
concerns could include, but are not limited,
to any one (1) or a combination of the
following;
(a) Finding of unsafe and unsound
activities that could adversely affect the
interest of depositors and/or creditors;
(b) A finding of repeat violations of law
or continuing failure to comply with
Monetary Board directives; and
(c) Significant reporting errors that
materially misrepresent the banks financial
condition.
The framework for the enforcement of
PCA on banks and other financial
institutions under its jurisdiction is in
Appendix 69.
C.
MERGER OR CONSOLIDATION
OF BANKS
Sec. X111 Merger or Consolidation to

Meet Minimum Capital. The merger or
consolidation of banks or of bank(s) and
other financial intermediary(ies) to meet
minimum capital requirements shall be
allowed subject to the following regulations.
For purposes of merger and
consolidation, the following definitions
shall apply:
a. Merger - is the absorption of one (1)
or more corporations by another existing
corporation, which retains its identity and
takes over the rights, privileges, franchises,
and properties, and assumes all the
liabilities and obligations of the absorbed
corporation(s) in the same manner as if it
had itself incurred such liabilities or
obligations. The absorbing corporation
continues its existence while the life or lives
of the other corporation(s) is/are terminated.
b. Consolidation is the union of two
(2) or more corporations into a single new
corporation, called the consolidated
corporation, all the constituent corporations
thereby ceasing to exist as separate entities.
The consolidated corporation shall
thereupon and thereafter possess all the
rights, privileges, immunities, franchises and
properties, and assume all the liabilities and
obligations of each of the constituent
corporations in the same manner as if it had
itself incurred such liabilities or obligations.
X111.1 Requirement of Bangko
Sentral approval.
Mergers and
consolidations including the terms and
conditions thereof shall comply with the
provisions of applicable law and are subject
to approval by the BSP.
X111.2 Rules on exchange of shares

As a general rule, the ratio of exchange of
shares between or among the participants
in a bank merger or consolidation shall be
Part I - Page 13
(Circular No. 523 dated 23 March 2006)
X111.2 - X112
05.12.31
based on mutual agreement of the parties

concerned. However, any appraisal
increment reserve (revaluation reserve)
arising from the revaluation of the fixed
assets, as may be agreed upon by the parties
shall be limited to premises, improvement,
and equipment which are necessary for its
immediate accommodation in the
transaction of the banks business. Such
revaluation should be based on fair
valuation of the property which shall be
subject to review and approval by the BSP.
Sec. X112 Merger or Consolidation
Incentives. In pursuance of the policy to
promote mergers and consolidations among
banks and other financial intermediaries as
a means to develop larger and stronger FIs,
constituent entities may, subject to BSP
approval, avail themselves of any or all of
the following incentives:
a. Revaluation of premises, improvements and equipment of the institutions:
Provided, That such revaluation shall be
based on fair valuation of the property
conducted by a reputable appraisal
company which shall be subject to review
and approval by the BSP.
The following rules shall govern the
revaluation of assets:
(1) The revaluation of the premises,
improvements and equipment shall be
allowed only to all institutions participating
in a merger or consolidation if all of them
belong to the same category, or at least two
(2) of them belong to the highest category
among the merging or consolidating
institutions;
(2) In case the merging or consolidating
institutions do not belong to the same
category or only one (1) of them falls under
the highest category, all of them may be
allowed to revalue their premises,
improvements and equipment: Provided,
That the amount of appraisal increment
resulting from such revaluation shall be
limited to the amount of the total resources
Part I - Page 14
of the institution belonging to the lower

category or categories.
(3) The appraisal increment resulting
from the revaluation shall form part of
capital for purposes of determining the
single borrowers limit and capital-to-risk
assets ratio. The use of appraisal increment
for cash dividend shall be governed by the
provisions of the Corporation Code.
(4) The revaluation of premises,
improvements, and equipment of the
institution as well as the recognition of
goodwill as an incentive to mergers or
consolidations as provided in item "e"
hereof shall only be allowed if the following
conditions are met:
(i) The surviving or consolidated entity
will meet the existing capital requirements
after all adjustments are taken up in the
books of accounts of the merging or
consolidating entities but before
considering appraisal increments and
goodwill, or there will be infusion of fresh
capital to meet said existing capital
requirements; and
(ii) The merger or consolidation will
result in a more viable FI as a result of cost
savings and improved competitive
position.
In case of purchase or acquisition of the
majority or all of the outstanding shares of
stocks of a bank, the same conditions must
be satisfied.
b. Unbooked valuation reserves based
upon the BSP examination and other capital
adjustments resulting from the merger or
consolidation may be booked on staggered
basis over a maximum period of five (5)
years.
The following guidelines shall govern
the staggered booking of valuation reserves:
(1) The booking on staggered basis
over a maximum period of five (5) years of
unbooked valuation reserves based upon
examination by the BSP may be allowed to
all institutions participating in a merger or
consolidation if all of them belong to the
X112
05.12.31
same category, or at least two (2) of them

belong to the highest category among the
merging or consolidating institutions.
(2) In case the merging or
consolidating institutions do not belong to
the same category or only one (1) of them
falls under the highest category, all of them
may be allowed to book the required
valuation reserves based upon examination
by the BSP on a staggered basis over a
maximum of five (5) years: Provided, That
the aggregate amount of the required
valuation reserves shall be limited to the
amount of the total resources of the
institution belonging to the lower category
or categories.
c. Exemption from the forty percent
(40%) and sixty percent (60%) ownership
limits prescribed in Subsec. X126.1 in the
new or surviving institution of any Filipino
individual or domestic non-bank
corporation: Provided, That this shall be
allowed only if the bank that is being
merged is distressed as may be determined
by the Monetary Board and such merger is
for the purpose of rehabilitating the bank:
Provided, further, That whenever any of
said stockholders exceed the prescribed
limits, his holdings shall not be increased,
but may be reduced and once reduced,
shall not thereafter be increased beyond
such limits.
In the case of purchase or acquisition
of majority or all of the outstanding shares
of a bank/QB by another bank/QB, the
revaluation of the assets and the booking
of the required valuation reserves based
upon examination by the BSP over a
period of five (5) years shall be allowed
only if such purchase or acquisition is for
the purpose of rehabilitating the former
bank/QB: Provided, That the revaluation
of assets and staggered booking of
valuation reserves shall be allowed in full
only if both banks/QBs belong to the same
category. Otherwise, only the bank/QB
being acquired/rehabilitated shall be
allowed to recognize in full the appraisal

increment resulting from revaluation of
assets and to book valuation reserves on a
staggered basis, while in the case of the
acquiring bank/QB, the appraisal
increment resulting from revaluation of
assets and the privilege of staggered
booking of valuation reserves shall each
be limited to the amount of the total
resources of the bank/QB being acquired/
rehabilitated.
The exemption from the ownership
limits prescribed in Subsec. X126.1 on
existing stockholdings of any Filipino
individual or domestic non-bank
corporation in a banking institution, as an
incentive to purchase or acquisition of
majority or all of the outstanding shares of
stock of bank/QB shall be allowed only if
the bank being purchased or acquired is
distressed as may be determined by the
Monetary Board and such merger is for the
purpose of rehabilitating the bank/QB.
d. If by reason of merger or
consolidation, the resulting bank is unable
to comply fully with the prescribed net
worth-to-risk assets ratio, the Monetary
Board may, at its discretion, temporarily
relieve the bank from full compliance with
this requirement under such conditions as
it may prescribe;
The recognition of goodwill as an
incentive to mergers or consolidations shall
only be allowed subject to the conditions
in Item "a (4)".
e. (Deleted by Circular 494 dated 20
September 2005);
f. Conversion or upgrading of the
existing head offices, branches and/or other
offices of the merged or absorbed
institutions into branches of the new or
surviving financial institutions;
g. Condonation of liquidated damages
and/or penalties on loan arrearages to the
BSP of RBs which are parties to the merger
or consolidation: Provided, That loan
arrearages of RBs to the BSP are paid in
Part I - Page 15
X112 - X115
05.12.31
full or covered by a plan of payment

payable on an equal monthly amortization
schedule over a period not exceeding ten
(10) years;
h. Relocation of branches/offices may
be allowed within one (1) year from date of
merger or consolidation in cases where the
merger or consolidation resulted in
duplication of branches/offices in a service
area, or in such other cases/circumstances as
may be prescribed by the Monetary Board;
i. Outstanding penalties in legal
reserve deficiencies and interest on
overdrafts with the BSP as of the date of the
merger or consolidation may be paid in
installments over a period of one (1) year;
j. Rediscount ceiling of 150% of
adjusted capital accounts for a period of one
(1) year, reckoned from the date of merger
or consolidation: Provided, That the
merged/consolidated bank meets the
required net worth-to-risk assets ratio and
all of the other requirements for
rediscounting;
k. UBs/KBs whose total outstanding
real estate loans exceed twenty percent
(20%) of total loan portfolio may be given
a period of one (1) year within which to
comply with the prescribed twenty percent
(20%) ratio reckoned from the date of
merger or consolidation;
l. Restructuring/plan of payment of
past due obligations of the proponents with
the BSP as of the date of merger/
consolidation over a period not exceeding
ten (10) years;
m. In the case of RBs, grant of access
to the rediscounting window of the BSP for
a period of two (2) years from the date of
merger or consolidation even if its past due
ratio exceeds twenty five percent (25%) of
loan portfolio but not exceeding thirty percent
(30%): Provided, That the merged/
consolidated bank meets all the other
requirements. During said period of two (2)
years, its rediscounting limit per application
may also be increased to an amount
Part I - Page 16
equivalent to the total of the rediscounting

limit per application of each of the constituent
banks before merger or consolidation;
n. Subject to approval of the Monetary
Board concurrent officerships between a
merged or consolidated bank/financial
institution and another bank/financial
institution may be allowed;
Likewise, with prior approval of the
Monetary Board, concurrent directorships
may be allowed in cases where a bank
acquires shares of stock of another bank
for the purpose of merging or consolidating
the two (2) banks regardless of whether
the banks belong to the same category or
both have quasi-banking functions;
o. Subject to other requirements on
the establishment of branches, the merged/
consolidated RBs may be allowed to
establish a branch each in Cebu City and
Davao City if it has put up the minimum
capital requirement for these places;
p. Grant of automatic extension of five
(5) years for retirement of government
preferred shares to be reckoned from the
date of merger or consolidation;
q. Training of officers and staff of the
merging or consolidating RBs by the BSP; and
r. Any right or privilege granted a
merging bank under a rehabilitation
program previously approved by the
Monetary Board or under any special
authority granted by the Monetary Board
shall continue to be in effect.
The revaluation of assets and staggered
booking of valuation reserves shall be
available for a period of two (2) years from
19 February1999 while the rest of the
incentives enumerated under Sec. X112
shall be available for a period of three (3)
years from 31 August 1998.
The foregoing incentives may also be
granted in cases of purchases or acquisitions
of majority or all of the outstanding shares of
stock of a bank/QB.
X116 - X116.2
08.12.31
D. RISK-BASED CAPITAL ADEQUACY

RATIO
Sec. X116 Minimum Ratio. The guidelines
implementing the revised risk-based
capital adequacy framework for the
Philippine banking system to conform to
Basel II recommendations is provided in
Appendix 63b. These guidelines apply to
all UBs and KBs, as well as their subsidiary
banks and QBs.
TBs, RBs, as well as QBs that are not
subsidiaries of UBs and KBs shall continue
to be subject to the risk-based capital
adequacy framework, as provided below,
as well as Subsecs. X116.1 to X116.8.
The risk-based capital ratio of a bank,
expressed as a percentage of qualifying
capital to risk-weighted assets, shall not be
less than ten percent (10%) for both solo
basis (head office plus branches) and
consolidated basis (parent bank plus
subsidiary financial allied undertakings, but
excluding insurance companies).
The ratio shall be maintained daily.
(The BSPs implementation plans for the
new international capital standards or
Basel 2 contained in the Basel Committee
on Banking Supervision document
International Convergence of Capital
Measurement and Capital Standards:

A Revised Framework, are shown in
Appendix 63)
(As amended by M-2008-015 dated 19 March 2008, Circular
Nos. 605 dated 05 March 2008, 588 dated 11 December 2007,
M-2007-019 dated 21 June 2007, Circular Nos. 560 dated
31 January 2007 and 538 dated 04 August 2006)
X116.1 Qualifying capital. The

composition of qualifying capital is shown
in Appendix 63a.
(As amended by Circular Nos. 560 dated 31 January 2007, 528
dated 03 May 2006 and Memorandum to All Banks dated
23 March 2006)
X116.2 Risk-weighted assets. The

risk-weighted assets shall be determined
by assigning risk weights to amounts of
on-balance sheet assets and to credit
equivalent amounts of off-balance sheet
items (inclusive of derivatives contracts):
Provided, That the following shall be
deducted from the total risk-weighted
assets: (1) general loan loss provision
(in excess of the amount permitted to be
included in upper Tier 2 capital) and
unbooked valuation reserves; and (2) other
capital adjustments affecting asset accounts
based on the latest report of examination
as approved by the Monetary Board.
Part I - Page 16a
X116.2
08.12.31
a. On-balance sheet assets. The riskweighted amount shall be the product of

the book value of asset multiplied by the risk
weight associated with that asset, as follows:
(1) Zero percent (0%) risk weight
(a) Cash on hand;
(b) Claims on or portions of claims
guaranteed by or collateralized by
securities issued by i. Philippine National Government
and BSP; and
ii. Central governments and central
banks of foreign countries with the highest
credit quality as defined in Subsec. X116.3;
(c) Claims on or portions of claims
guaranteed by or collateralized by
securities issued by multilateral
development banks (MDBs);
(d) Loans to the extent covered by
hold-out on, or assignment of, deposits/
deposit substitutes maintained with the
lending bank;
(e) Loans or acceptances under letters
of credit to the extent covered by margin
deposits;
(f) Portions of special time deposit
loans covered by Industrial Guarantee and
Loan Fund (IGLF) guarantee;
(g) Real estate mortgage loans to the
extent guaranteed by the Home Guaranty
Corporation (HGC);
(h) Housing microfinance loans as
provided under Subsec. X361.5 to the
extent guaranteed by the HGC;
(i) Loans to the extent guaranteed by
the Trade and Investment Development
Corporation of the Philippines
(TIDCORP);
(j) Foreign currency notes and coins
on hand acceptable as international
reserves; and
(k) Gold bullion held either in own
vaults, or in anothers vaults on an allocated
basis, to the extent it is offset by gold bullion
liabilities;
(2) Twenty percent (20%) risk weight(a) Checks and other cash items (COCIs);
(b) Claims on or portions of claims

guaranteed by or collateralized by securities
issued by non-central government public
sector entities of foreign countries with the
highest credit quality as defined in Subsec.
X116.3;
(c) Claims on or portions of claims
guaranteed by Philippine incorporated
banks/QBs with the highest credit quality
as defined in Subsec. X116.3;
(d) Claims on or portions of claims
guaranteed by foreign incorporated banks
with the highest credit quality as defined in
Subsec. X116.3;
(e) Claims on Philippine incorporated
private enterprises with the highest credit
quality as defined in Subsec. X116.3;
(f) Claims on foreign incorporated
private enterprises with the highest credit
quality as defined in Subsec. X116.3;
(g) Loans to exporters to the extent
guaranteed by Small Business Guarantee
and Finance Corporation (SBGFC):
Provided, That loans to exporters to the
extent guaranteed by the Guarantee Fund
for Small and Medium Enterprises (GFSME)
outstanding as of the date of the effectivity
of the merger of the SBGFC and GFSME
shall continue to have a zero percent (0%)
risk weight: Provided, further, That the zero
percent (0%) risk weight shall not apply to
loans renewed after the merger of the
SBGFC and the GFSME; and
(h) Foreign currency checks and other
cash items denominated in currencies
acceptable as international reserves.
(3) Fifty percent (50%) risk weight
(a) Loans for housing purpose, fully
secured by first mortgage on residential
property that is or will be occupied or leased
out by the borrower, which are not
classified as non-performing;
(b) Local government unit (LGU) bonds
which are covered by Deed of Assignment
of Internal Revenue Allotment of the LGU
and guaranteed by the LGU Guarantee
Corporation; and
Part I - Page 17
X116.2
08.12.31
(c) Housing microfinance loans under

Subsec. X361.5 other than those guaranteed
by the HGC.
(4) Seventy five percent (75%) risk
weight
(a) Defined small and medium
enterprise (SME) and microfinance loan
portfolio that meets the following criteria:
(i) For individual claims that may form
part of the SME and microfinance loan
portfolio
(aa) Claim must be on a small or
medium business enterprise as defined
under existing BSP regulations; and
(bb) Claims must be in the form of:
- Direct loans; or
- Unavailed portion of committed
credit lines and other business facilities such
as outstanding guarantees issued and
unused letters of credit: Provided, That the
credit equivalent amounts thereof shall be
determined in accordance with Subsec.
X116.2.b.
(ii) For the SME and microfinance
portfolio (aa) It must be a highly diversified
portfolio, i.e., it has at least 500 borrowers
that are distributed over a number of
industries; and
(bb)The past due ratios of the defined
SME and microfinance loan portfolio for
each of the immediately preceding three (3)
years do not exceed five percent (5%).
(iii) For the bank (aa) It must have adequate risk
management process approved by the
board of directors, including as a minimum,
a rigorous credit approval process and an
adequate loan tracking system that allows
timely monitoring of loan releases,
collection and arrearages, and any
restructuring and refinancing; and
(bb)The bank must be financially sound
and in compliance with major prudential
requirements, particularly the following:
- CAMELS composite rating of at least
3 and management score of at least 3
in its latest BSP examination; and
Part I - Page 18
- Minimum applicable capital

adequacy ratio.
(b) Non-performing loans (NPLs) for
housing purpose, fully secured by first
mortgage on residential property that is
or will be occupied or leased out by the
borrower; Provided, That risk weighting
for such loans shall be increased to 100%
in 2007;
(5) One hundred percent (100%) risk
weight
All other assets including, among
others, the following:
(a) Claims on central governments and
central banks of foreign countries other than
those with the highest credit quality;
(b) Claims on Philippine local
government units;
(c) Claims on non-central government
public sector entities of foreign countries
other than those with the highest credit
quality;
(d) Claims on government-owned or controlled commercial corporations;
(e) Claims on Philippine incorporated
banks/QBs other than those with the highest
credit quality;
(f) Claims on foreign incorporated
banks other than those with the highest
credit quality;
(g) Claims on Philippine incorporated
private enterprises and claims on foreign
incorporated private enterprises other than
those with the highest credit quality;
(h) Loans to companies engaged in
speculative residential building or property
development;
(i) Equity investments (except those
deducted from capital);
(j) Bank premises, furniture, fixtures
and equipment (net);
(k) Appraisal increment - bank premises,
furniture, fixtures and equipment (net);
(l) Real and other properties owned or
acquired (net);
(m) Foreign currency notes and coins
on hand not acceptable as international
reserves;
X116.2
08.12.31
(n) Gold bullion held in either own

vaults, or in anothers vaults on an allocated
basis, that is not offset by gold bullion
liabilities;
(o) Foreign currency COCIs not
denominated in foreign currencies acceptable
as international reserves; except those which
are deducted from capital, as follows:
(i) Unsecured credit accommodations,
both direct and indirect, to DOSRI;
(ii) Unsecured loans, other credit
accommodations and guarantees granted to
subsidiaries and affiliates.
(iii) Deferred income tax;
(iv) Goodwill;
(v) Sinking fund for redemption of
limited life redeemable preferred stock with
the replacement requirement upon
redemption;
(vi) Sinking fund for redemption of
limited life redeemable preferred stock
without the replacement requirement upon
redemption (limited to the balance of
redeemable preferred stock after applying
the cumulative discount factor);
(vii)Equity investments in unconsolidated
subsidiary banks and other financial allied
undertakings, but excluding insurance
companies;
(viii) Investments in debt capital
instruments of unconsolidated subsidiary
banks;
(ix) Equity investments in subsidiary
insurance companies and non-financial
allied undertakings;
(x) Reciprocal investments in equity of
other banks/enterprises;
(xi) Reciprocal investments in
unsecured subordinated term debt
instruments of other banks/QBs in excess
of the lower of:
(aa) an aggregate ceiling of five percent
(5%) of total Tier 1 capital of the bank; or
(bb) ten percent (10%) of the total
outstanding unsecured subordinated term
debt issuance of the other bank/QB; and
(xi) Net due from head office,
branches, subsidiaries and other offices
outside the Philippines, if any (for foreign

bank branches); and
(p) Starting 2007, NPLs for housing
purpose, fully secured by first mortgage on
residential property that is or will be
occupied or leased out by the borrower.
(6) One hundred twenty five percent
(125%) risk weight
All NPLs (except NPLs for housing
purpose, fully secured by first mortgage on
residential property that is or will be occupied
or leased out by the borrower) and all
non-performing debt securities: Provided,
That risk weighting for such exposures shall
be increased to 150% in 2007.
NPLs, which are secured by eligible
collaterals or guaranteed by eligible
guarantors below, shall be assigned the risk
weight of the collateral or guarantor:
Provided, That in cases of guarantees, the
bank is able to pursue the guarantor of any
monies outstanding within the period of time
stipulated in the guarantee contract.
Otherwise, the loan in question shall be
assigned the risk weight applicable for NPLs.
(a) List of eligible collaterals
(i) Securities issued by the Philippine
national government and BSP, and central
governments and central banks of foreign
countries with the highest credit quality as
defined in Subsec. X116.3;
(ii) Securities issued by multilateral
development banks listed under Sec. X116.3;
(iii) Cash in the form of hold out on or
assignment of deposits/deposit substitutes
maintained with the lending bank, and
margin deposits for loans or acceptances
under letters of credit; and
(iv) Securities issued by non-central
government public sector entities of foreign
countries with the highest quality as defined
in Subsec. X116.3.
(b) List of eligible guarantors
(i) Philippine national government
and BSP, and central governments and
central banks of foreign countries with the
highest credit quality as defined in
Subsec. X116.3;
Part I - Page 19
X116.2
08.12.31
(ii) Multilateral development banks

listed under Sec. X116.3;
(iii) IGLF;
(iv) HGC;
(v) TIDCORP;
(vi) Non-central government public
sector entities of foreign countries with
the highest credit quality as defined in
Subsec. X116.3;
(vii) Philippine incorporated banks/
QBs with the highest credit quality as
defined in Subsec. X116.3;
(viii) Foreign incorporated banks with
the highest credit quality as defined in
Subsec. X116.3;
(ix) SBGFC; and
(x) LGU Guarantee Corporation
(LGUGC), but only those guaranteed loans
covered by Deed of Assignment of Internal
Revenue Allotment of the LGU.
b.
Off-balance sheet items. The
risk-weighted amount shall be calculated
using a two (2)-step process.
First, the credit equivalent amount of
an off-balance sheet item shall be
determined by multiplying its notional
principal amount by the appropriate credit
conversion factor, as follows:
(1) One hundred percent (100%)
credit conversion factor This shall apply to direct credit
substitutes, e.g., general guarantees of
indebtedness (including standby letters of
credit serving as financial guarantees for
loans and securities) and acceptances
(including endorsements with the character
of acceptances), and shall include (a) Outstanding guarantees issued foreign loans;
(b) Outstanding guarantees issued
other than foreign loans and shipside bonds/
airway bills; and
(c) Export letters of credit confirmed.
This shall also apply to sale and repo
agreements and asset sales with recourse
where the credit risk remains with the bank
(to the extent not included in the balance
sheet), as well as to forward asset purchases,
Part I - Page 20
forward forward deposits and partly-paid

shares and securities which represent
commitments with certain drawdown:
Provided, That these items shall be
weighted according to the type of asset and
not according to the type of counterparty
with whom the transaction has been
entered into.
(2) Fifty percent (50%) credit
conversion factor
This shall apply to certain transactionrelated contingent items, e.g., performance
bonds, bid bonds, warranties and standby
letters of credit related to particular
transactions, and shall include
(a) Standby letters of credit - domestic
(net of margin deposit) established as a
guarantee that a business transaction will
be performed; and
(b) Standby letters of credit - foreign
(net of margin deposit).
This shall also apply to (c) Note issuance facilities and
revolving underwriting facilities; and
(d) Other commitments, e.g., formal
standby facilities and credit lines with an
original maturity of more than one (1) year.
This shall include underwritten accounts
unsold.
(3) Twenty percent (20%) credit
conversion factor
This shall apply to short-term, selfliquidating trade-related contingencies, e.g.,
documentary credits collateralized by the
underlying shipments, and shall include
(a) Outstanding guarantees issued shipside bonds/airway bills;
(b) Domestic letters of credit
outstanding (net of margin deposit);
(c) Sight import letters of credit
(d) Usance import letters of credit
(e) Deferred letters of credit (net of
margin deposit); and
(f) Revolving letters of credit (net of
margin deposit) arising from movement of
goods and/or services.
X116.2
08.12.31
(4) Zero percent (0%) credit conversion

factor
This shall apply to commitments with an
original maturity of up to one (1) year, or
which can be unconditionally cancelled at
any time, and shall include committed credit
line for commercial paper issues.
This shall also apply to those not
involving credit risk, and shall include
(a) Inward bills for collection;
(b) Outward bills for collection;
(c) Items held for safekeeping/
custodianship;
(d) Trust department accounts;
(e) Late deposits/payments received;
(f) Items held as collaterals;
(g) Travelers checks; etc.
Second, the credit equivalent amount
shall be treated like any on-balance sheet
asset and shall be assigned the appropriate
risk weight, i.e., according to the obligor,
or if relevant, the qualified guarantor or the
nature of collateral.
c. Derivatives contracts. The credit
equivalent amount shall be the sum of the
current credit exposure (or replacement
cost) and an estimate of the potential future
credit exposure (or add-on): Provided, That
the following shall not be included in the
computation:
(1) Instruments which are traded on
exchange where they are subject to daily
receipt and payment of cash variation
margin; and
(2) Exchange rate contracts with
original maturity of fourteen (14) calendar
days or less.
The current credit exposure shall be
the positive mark-to-market value of the
contract (or zero if the mark-to-market
value is zero or negative). The potential
future credit exposure shall be the
product of the notional principal amount
of the contract multiplied by the
appropriate potential future credit
conversion factor, as indicated below:
Residual Maturity
Interest
Rate Contract
One (1) year or less

Over one (1) year to
five (5) years
Over five (5) years
Exchange
Rate Contract
0.0%
1.0 %
0.5%
1.5%
5.0 %
7.5%
Provided, That for contracts with multiple

exchanges of principal, the factors are to be
multiplied by the number of remaining
payments in the contract: Provided, further,
That for contracts that are structured to settle
outstanding exposure following specified
payment dates and where the terms are reset
such that the market value of the contract is
zero (0) on these specified dates, the residual
maturity would be set equal to the time until
the next reset date, and in the case of interest
rate contracts with remaining maturities of
more than one (1) year that meet these criteria,
the potential future credit conversion factor is
subject to a floor of five tenths percent
(0.5%): Provided, furthermore, That no
potential future credit exposure shall be
calculated for single currency floating/floating
interest rate swaps, i.e., the credit exposure
on these contracts would be evaluated solely
on the basis of their mark-to-market value.
The credit equivalent amount shall be
treated like any on-balance sheet asset, and
shall be assigned the appropriate risk
weight, i.e., according to the obligor, or if
relevant, the qualified guarantor or the
nature of collateral: Provided, That a fifty
percent (50%) risk weight shall be applied
in respect of obligors which would
otherwise attract a one hundred percent
(100%) risk weight.
The extent to which a claim is
guaranteed/collateralized shall be
determined by the amount of guarantee
coverage/current market value of securities
pledged, in comparison with the book value
of the on-balance sheet asset or the notional
principal amount of the off-balance sheet
Part I - Page 21
X116.2 - X116.3
08.12.31
exposure, except for derivatives contracts

for which determination is generally made
in relation to credit equivalent amount.
The capital treatment of investments in
credit-linked notes (CLNs) and similar credit
derivative products such as credit-linked
deposits (CLDs) and credit-linked loans (CLLs)
shall comply with the guidelines in Sec. 1633.
(As amended by M-2008-015 dated 19 March 2008 and
Circular No. 560 dated 31 January 2007)
X116.3 Definitions
a. Amount due from the BSP. This
refers to all deposits of the reporting bank
with the BSP.
b. Appraisal increment reserve. This
shall form part of capital only if authorized
by the Monetary Board.
c. Bank premises, furniture, fixtures
and equipment net of depreciation. This
refers to the cost of land and improvements
used as bank premises, and furniture,
fixtures and equipment owned by the bank.
d. Cash on hand. This refers to total
cash held by the bank consisting of both
notes and coins in Philippine currency.
e. Central government of a foreign
country. This refers to the central
government which is regarded as such by a
recognized banking supervisory authority
in that country.
f. Claims. This refer to loans or debt
obligations of the entity on whom the claim
is held, and shall include, but shall not be
limited to, the following accounts, inclusive
of accumulated market gains/(losses) and
accumulated bond discount/(premium
amortization), and net of specific allowance
for probable losses:
(1) Due from BSP;
(2) Due from other banks;
(3) Interbank loans receivable;
(4) Loans and discounts;
(5) Agrarian reform and other
agricultural credit loans - P.D. 717;
(6) Development incentive loans;
Part I - Page 22
(7) Bills purchased;

(8) Customers liability on bills/drafts
under LCs/TRs;
(9) Customers liability for this banks
acceptances outstanding;
(10) Restructured loans;
(11) Trading account securities loans;
(12) Underwriting accounts - debt
securities (for UBs);
(13) Underwriting accounts - equity
securities (for UBs);
(14) Trading account securities
investments;
(15) Trading account securities equity
(for UBs);
(16) Available for sale securities;
(17) Investments in bonds and other
debt instruments (IBODI); and
(18) Others, e.g., accounts receivable
and accrued interest receivable.
Accruals on a claim shall be classified
and risk weighted in the same way as the
claim. Bills purchased shall be classified
as claims on the drawee banks.
g. Consolidated basis. This refers to
combined statement of condition of parent
bank and subsidiary financial allied
companies.
h. Debt capital instruments. This
refers to unsecured subordinated term debt
instruments qualifying as capital of banks.
i. Equity investments. This refers to
investments in capital stock of companies,
firms or enterprises, made for purposes of
control, affiliation or other continuing
business advantage.
j. Exchange rate contracts. This
includes cross-currency interest rate swaps,
forward foreign exchange contracts,
currency futures, currency options
purchased and similar instruments.
k. Financial allied undertakings. This
refers to enterprises or firms with homogenous
or similar activities/business/functions with
the financial intermediary and may include
X116.3
05.12.31
but not limited to leasing companies, banks,

IHs, financing companies, credit card
companies, FIs catering to small and
medium scale industries (including venture
capital corporations), companies engaged
in stock brokerage/securities dealership,
companies engaged in foreign exchange

dealership/brokerage, holding companies
(for UBs), and such other similar activities
as the Monetary Board may declare as
appropriate from time to time, but excluding
insurance companies.
(Next Page is Part I-Page 23)
Part I - Page 22a
X116.3
05.12.31
l. Claims on foreign country and

foreign incorporated bank/private
enterprise and Philippine incorporated
bank/quasi bank/private enterprise with the
highest credit quality. This refers to claims
on a country, bank or private enterprise
given the highest credit ratings by any of
the following BSP-recognized credit rating
agencies:
(1) International rating agencies:
(1)
(2)
(3)
(4)
Rating Agency
Moodys
Standard and Poors
FitchRatings
And such other as may be
Monetary Board
Highest Rating
Aa3 and above
AA- and above
AA- and above
approved by the
(2) Domestic rating agencies:

Rating Agency
(1) PhilRatings
Highest Rating
PRS Aa and
above
(2) And such other rating agencies as may be
approved by the Monetary Board
Provided, That for purposes of this

Subsection:
(i) Any reference to credit rating shall
refer to issue-specific rating; the issuer rating
may be used only if the claim being riskweighted is a senior obligation of the issuer
and is of the same denomination applicable
to the issuer rating (e.g., local currency
issuer rating may be used for risk weighting
local currency denominated senior claims),
or in cases of guarantees;
(ii) For loans, risk weighting shall
depend on either the rating of the borrower
or the rating of the unsecured senior
obligation of the borrower: Provided, That
the loan is of the same denomination
applicable to the borrower rating or rating
of the unsecured senior obligation;
Domestic debt issuances may be rated by
BSP-recognized domestic or international
credit rating agencies who may use a
national rating scale acceptable to the BSP,
while international debt issuances should
be rated by BSP-recognized international
credit rating agencies only; and
If a claim has only one (1) rating by any

of the BSP recognized rating agencies, that
rating shall be used to determine the risk
weight of the claim; in cases where there
are two (2) or more ratings which map into
different risk weights, the higher of the two
(2) lowest risk weights should be used.
m. Forward asset purchases. This refers
to a commitment to purchase a loan,
security or other asset at a specified future
date, usually on prearranged terms.
n. Forward forward deposits. This
refers to an agreement between two (2)
parties whereby one (1) will pay and the
other will receive an agreed rate of interest
on a deposit to be placed by one (1) party
with the other at some predetermined date
in the future.
o. Gold bullion held in anothers vault
on an allocated basis. This refers to gold
bullion held by others to the order of the
bank, and which is separately ascertainable.
p. Goodwill. This refers to an
intangible asset that represents the excess
of the purchase price over the fair market
value of identifiable assets acquired less
liabilities assumed in acquisitions accounted
for under the purchase method of
accounting.
q. Interest rate contracts. This includes
single-currency interest rate swaps, basis
swaps, forward rate agreements, interest rate
futures, interest rate options purchased and
similar instruments.
r. Loans for housing purpose, fully
property that is or will be occupied or leased
out by the borrower. This shall not include
loans to companies engaged in speculative
residential building or property
development.
s. Loans or acceptances under letters
of credit to the extent covered by margin
deposits. This shall not include the
unnegotiated letters of credit or the
unutilized portion thereof, or other items
booked under contingent accounts. This
Part I - Page 23
X116.3
05.12.31
shall also not include margin deposits

against loans or acceptance accounts which
are fully liquidated.
t. Loans to the extent covered by holdout on, or assignment of, deposits or deposit
substitutes maintained in the lending bank.
A loan shall be considered as secured by a
hold-out on, or assignment of deposit or
deposit substitute only if such deposit or
deposit substitute account is covered by a
hold-out agreement or deed of assignment
signed by the depositor or investor/placer
in favor of the bank. This shall not include
loans transferred to/carried by the banks
trust department secured by deposit holdout/assignment.
u. Multilateral development banks.
These refer to the World Bank Group
comprised of the International Bank for
Reconstruction and Development (IBRD)
and the International Finance Corporation
(IFC), the Asian Development Bank (ADB),
the African Development Bank (AfDB), the
European Bank for Reconstruction and
Development (EBRD), the Inter-American
Development Bank (IADB), the European
Investment Bank (EIB); the Nordic
Investment Bank (NIB); the Caribbean
Development Bank (CDB), the Council of
Europe Development Bank (CEDB) and such
others as may be recognized by the BSP.
v. Non-central government public
sector entity of a foreign country. This refers
to entities which are regarded as such by a
recognized banking supervisory authority in
the country in which they are incorporated.
w. Note issuance facilities and
revolving underwriting facilities. This refers
to an arrangement whereby a borrower may
draw down funds up to a prescribed limit
over an extended period by repeated issues
to the market of promissory notes which the
bank committed to underwrite.
x. Other commitments. This includes
undrawn portion of any binding
arrangements which obligate the bank to
provide funds at some future date.
Part I - Page 24
y. Other commitments with an original

maturity of up to one (1) year. This includes
any revolving or undated open-ended
commitments, e.g., overdrafts or unused
credit lines, providing that they can be
unconditionally cancelled at any time and
subject to credit revision at least annually.
z. Partly-paid shares and securities.
This arises where only a part of the issue
price or nominal face value of a security
purchased has been subscribed and the
issuer may call for the outstanding balance
(or a further installment), either on a date
predetermined at the time of issue, or at an
unspecified future date.
aa. Perpetual preferred stock. This
refers to preferred stock that does not have
a maturity date, that cannot be redeemed
at the option of the holder of the instrument,
and that has no provision that will require
future redemption of the issue. Consistent
with these provisions, any perpetual
preferred stock with a feature permitting
redemption at the option of the issuer may
qualify as capital only if the redemption is
subject to prior approval of the BSP.
bb. Philippine local government units.
This refers to the Philippine government
units below the level of national
government, such as city, provincial, and
municipal governments.
cc. Philippine national government.This
shall refer to the Philippine national
government and their agencies such as
departments, bureaus, offices, and
instrumentalities,
but
excluding
government-owned and controlled
commercial corporations.
dd. Private sector. This refers to entities
other than banks and governments. This
shall also include commercial companies
owned by the public sector, such as
government-owned or controlled
commercial corporations.
ee. Redeemable preferred stock. This
refers to preferred stock which may be
redeemed at the specific dates or periods
X116.3 - X116.4
05.12.31
fixed for redemption, only upon prior

approval of the BSP and, where the
conditions of the issuance specifically
state, only if the shares redeemed or
replaced with at least an equivalent
amount of newly paid-in shares so that the
total paid-in capital stock is maintained at
the same level immediately prior to
redemption: Provided, That redemption shall
not be earlier than five (5) years after the date
of issuance: Provided, further, That such
redemption may not be made where the
bank is insolvent or if such redemption will
cause insolvency, impairment of capital or
inability of the bank to meet its debts as they
mature.
Banks which have issues of limited life
redeemable preferred shares compliant
with Subsec. X126.5 and outstanding prior
to 01 July 2001 shall be allowed to redeem
the same prior to the set redemption date,
without the need for replacement with at
least an equivalent amount of newly paidin shares within one (1) year from 26
September 2003 (effectivity of Circular No.
397) upon prior BSP approval: Provided,
That: (i) The redeemable preferred
shareholders will give consent; (ii) The
bank meets the required minimum riskbased CAR and minimum capital level for
the bank category after such redemption;
and
Such redemption will not cause the
inability of the bank to meet its obligations
as they mature.
ff. Sale and repurchase agreements
and asset sales with recourse. This refers
to arrangements whereby a bank sells a
loan, security or fixed asset to a third party
with a commitment to repurchase the
asset after a certain time, or in the event
to a certain contingency.
gg. Solo basis. This refers to combined
statement of condition of head office and
branches.
hh. Subsidiary. This refers to a
corporation or firm more than fifty percent
(50%) of the outstanding voting stock of

which is directly or indirectly owned,
controlled or held with the power to vote
by a bank.
ii. Treasury shares. This refers to
shares of the parent bank held by a
subsidiary financial allied undertaking in a
consolidated statement of condition.
jj. Private enterprises. This refers to
all commercial companies whether
organized in the form of a corporation,
partnership, or sole proprietorship.
kk. Non-performing debt securities. This
refers to debt securities as described below:
(i) For zero-coupon debt securities,
and debt securities with quarterly, semiannual, or annual coupon payments, they
shall be considered non-performing when
principal and or coupon payment is unpaid
for thirty (30) days or more after due date.
(ii) For debt securities with monthly
coupon payments, they shall be
considered non-performing when three (3)
or more coupon payments are in arrears:
Provided, however, That when the total
amount of arrearages reaches twenty
percent (20%) of the total outstanding
balance of the debt security, the total
outstanding balance of the debt security
shall be considered as non-performing.
X116.4 Required reports. Banks
shall submit a report of their risk-based
capital adequacy ratio on a solo basis (head
office plus branches) and on a consolidated
basis (parent bank plus subsidiary financial
allied undertakings, but excluding
insurance companies) quarterly to the
appropriate department of the SES in the
prescribed forms within the deadlines, i.e.,
fifteen (15) banking days and thirty (30)
banking days after the end of reference
quarter, respectively. Only banks with
subsidiary financial allied undertakings
(excluding insurance companies) which
under existing regulations are required to
prepare consolidated statements of
Part I - Page 25
X116.4 - X119.1
06.12.31
condition on a line-by-line basis shall be

required to submit report on a consolidated
basis. The abovementioned reports shall
be classified as Category A-2 reports.
X116.5 (Reserved)
1116.5 Market risk capital

requirement. UBs/KBs shall also measure
and apply capital charges for market risk,
in addition to the credit risk capital
requirement in this Section, in accordance
with the Guidelines to Incorporate Market
Risk in the Risk-Based Capital Adequacy
Framework in Appendix 46.
The capital treatment of market risk
exposures arising from the holdings of
Dollar-Linked Peso Notes (DLPNs) is
indicated in Appendix 46a.
The instructions for accomplishing the
report on computation of the Adjusted RiskBased Capital Adequacy Ratio covering
combined credit risk and market risk are
shown in Appendices 46b (for UBs and KBs
with expanded derivatives authority), 46c
(for UBs and KBs with expanded
derivatives authority but without options
transactions) and 46d (for UBs and KBs
without expanded derivatives authority).
2116.5 (Reserved)
3116.5 (Reserved)
X116.6 Sanctions. Whenever the
capital accounts of a bank are deficient with
respect to the prescribed risk-based capital
adequacy ratio (which for UBs/KBs shall
pertain to adjusted capital adequacy ratio
covering combined credit risk and market
risk), the Monetary Board, after considering
a report of the appropriate department of
the SES on the state of solvency of the
institution concerned, shall limit or prohibit
the distribution of the net profits and shall
require that part or all of net profits be used
to increase the capital accounts of the bank
Part I - Page 26
until the minimum requirement has been

met. The Monetary Board may restrict or
prohibit the making of new investments
of any sort by the bank, with the exception
of purchases of readily marketable
evidences of indebtedness issued by the
Philippine National Government and BSP
included in Item a(1)(b)i of Subsec.
X116.2, until the minimum required
capital ratio has been restored.
X116.7 Temporary relief. In case
of a bank merger, or consolidation, or
when a bank is under rehabilitation under
a program approved by the BSP, the
Monetary Board may temporarily relieve
the surviving bank, consolidated bank, or
constituent bank or corporations under
rehabilitation from full compliance with the
required capital ratio for a maximum period
of one (1) year.
X116.8 Capital treatment of
exposures/investments in certain
products. The guidelines on the capital
treatment of banks exposures/investments
in the following products are in Part VI:
a. Credit-linked notes in Sec. 1633.
b. Structured products in Subsec.
1635.4.
c. EFCDU investments in Subsec.
1636.4.
d. Investment in securities overlying
securitization structures in Subsec. 1648.4.
Sec. X119 Issuance of Unsecured
Subordinated Debt. The guidelines for the
issuance of unsecured subordinated debt
(UnSD) eligible as Hybrid Tier 1 (HT1) and
Tier 2 capital are as follows:
(As amended by Memorandum to All Banks dated 23 March 2006)
X119.1 Minimum features of UnSD

a. Form. A UnSD that will be publicly
distributed may either be scripless in form
X119.1 - X119.4
06.12.31
or evidenced by certificates such as:

promissory note, debenture or other
appropriate certificate of indebtedness. A
UnSD in scripless form shall comply with
the provisions of R.A. No. 8792, otherwise
known as the Electronic Commerce Act,
particularly on the existence of an
assurance on the integrity, reliability and
authenticity of the UnSD in electronic
form. An independent third party UnSD
Registry shall maintain unissued UnSD
certificates and the UnSD Registry Book,
which must be electronic if the UnSD is
scripless in form. A UnSD that will be
issued privately or on a negotiated basis
shall be evidenced by certificates.
All UnSD shall be registered in the
name of individuals or entities and prenumbered serially.
b. Denomination. The UnSD must be
issued in minimum denominations of
P500,000 or its equivalent if denominated
in a foreign currency.
c. Mandatory provisions. If the UnSD
is not scripless in form, the following
provisions must appear in bolder prints on
the face of every note, debenture or other
certificate evidencing the same:
(1) This obligation is not a deposit and
is not insured by the Philippine Deposit
Insurance Corporation (PDIC);
(2) This obligation is neither secured
nor covered by the guarantee of (name of
bank) or its subsidiaries and affiliates, or
other arrangement that legally or
economically enhances the priority of the
claim of any holder of the UnSD as against
depositors and other creditors (for LT2);
depositors, other creditors and holders of
LT2 capital instruments (for UT2); and
depositors, other creditors and holders
of LT2 and UT2 capital instruments (for
HT1);
(3) This obligation does not have a
priority claim, in respect of principal and
coupon payments in the event of windingup of the (name of bank), which is higher
than or equal with that of depositors and
other creditors (for LT2); depositors, other

creditors and holders of LT2 capital
instruments (for UT2); and depositors, other
creditors, holders of LT2 and UT2 capital
instruments (for HT1); and
(4) The obligation is ineligible as
collateral for a loan granted by (name of
Bank), its subsidiaries and affiliates.
If the UnSD is scripless in form, the
foregoing provisions/information shall be
furnished every buyer/investor in a separate
written instrument receipt of which must
be duly acknowledged by him.
d. Term. The UnSD qualifying under
HT1 capital shall be perpetual. The
minimum maturity of a UnSD qualifying
under UT2 and LT2 capital shall be ten (10)
years and five (5) years, respectively.
X119.2 Prior BSP approval. No

UnSD shall be issued without the prior
approval of the BSP.
of issuing bank. A bank applying for
authority to issue a UnSD shall comply with
the following requirements:
a. It has complied with the minimum
amount of capital required under Subsec.
X106.1 or its paid-in capital is at least equal
to the amount required therein.
b. It has established a risk
management system appropriate to its
operations characterized by clear
delineation of responsibility for risk
management,
adequate
risk
measurement systems, appropriately
structured risk limits, effective internal
controls and complete, timely and
efficient risk reporting system.
c. It is a locally incorporated bank.
X119.4 Public issuance of UnSD. Public
issuance of UnSD is an issuance offered to
the general public, which may or may not
be qualified investors/buyers as hereinafter
defined. The Issuing Bank must be rated by an
Part I - Page 27
X119.4
06.12.31
independent credit rating agency recognized

by the BSP and a Public Trustee shall be
appointed for investor protection.
a. Application for authority
(1) The application shall be signed by
the president or officer of equivalent rank
of the applicant bank;
(2) The application for authority on
each UnSD issue/issue program shall be
filed with the appropriate department of
the SES: Provided, That the period of an
issue program of two (2) or more tranches
shall not exceed one (1) year from date of
approval; and
(3) The application shall be
accompanied by:
(a) A certified true copy of the
resolution of the Issuing Banks board of
directors authorizing the issuance of the
UnSD indicating, among others, the issue
size, terms and conditions, offering period,
purpose or intended use of proceeds
thereof, the names of the Underwriter/
Arranger, UnSD Registry, Selling Agent(s)
and Market Maker(s), and Public Trustee;
(b) A certification by the corporate
secretary that the issuance of the UnSD
has been approved by the stockholders
owning or representing at least two-thirds
(2/3) of the outstanding capital stock of the
Issuing Bank if the UnSD has convertibility
feature;
(c) A written confirmation from the
president or officer of equivalent rank of
the Issuing Bank stating that all the
conditions for UnSD under Item a(2)(a),
Item b(1)(h) or Item b(2)(c), of Appendix
63a are complied with and that such
conditions shall be contained in the UnSD
Certificates if the UnSD is not in scripless
form, in the Information Disclosure and
Purchase Advice.
(d) A written undertaking from the
the Issuing Bank not to support, directly or
indirectly, by extending loans, issuing
payment guarantees or otherwise, the
Part I - Page 28
buyer/holder of the UnSD of the Issuing

Bank;
(e) A written confirmation from the
the Issuing Bank stating that the designated
Underwriter/Arranger, UnSD Registry,
Selling Agent(s) and Market Maker(s) were
provided with a complete list of subsidiaries
and affiliates of the Issuing Bank including
their subsidiaries and affiliates;
(f) A written undertaking from the
the Issuing Bank to update the abovementioned list within three (3) banking
days from the date of change in composition
thereof; and
(g) Specimen of the UnSD.
(h) A written external legal opinion
that all the conditions for UnSD under Item
a(2)(a), Item b(1)(h) or Item b(2)(c), of
Appendix 63a, including the subordination
(for HT1, UT2 and LT2) and loss absorption
(for HT1 and UT2) features, have been
met.
b. Additional requirements for the
issuance of UnSD
After a banks application to issue a
UnSD has been approved, the applicant
shall submit the following additional
requirements to the appropriate
department of the SES:
(1) At least fifteen (15) banking days
before the date of offering:
(a) A written confirmation from the
the Issuing Bank stating that the bank has
been rated by an independent credit rating
agency duly recognized by the BSP;
(b) Information disclosure of the UnSD
issuance prepared by the Underwriter/
Arranger;
(c) Promotional materials;
(d) Specimen of the proposed
Purchase
Advice
and
Registry
Confirmation; and
(e) Copy of the agreements between
the Issuing Bank and the Underwriter/
X119.4
06.12.31
Arranger/UnSD Registry/Selling Agent(s)/

Market Maker(s), and Public Trustee.
The BSP reserves the right to suspend
the date of offering, within the fifteen (15)
banking day period from submission of the
above-mentioned requirements.
(2) Within ten (10) banking days after
issuance of the initial and subsequent
tranches:
(a) A written notice of the actual date
of issuance/offering of each initial and
subsequent tranches.
c. Requirements for other parties
involved
(1) Underwriter/Arranger
(a) It is either a UB or an IH: Provided,
That if an offering is on a best effort basis,
the Arranger may also be a KB: Provided,
further, That if an offering is denominated
in foreign currency, the Underwriter/
Arranger may also be any reputable
international investment bank.
(b) It must be an independent third
party that has no subsidiary/affiliate or any
other relationship with the Issuing Bank
that would undermine the objective
conduct of due diligence.
(c) If Underwriter, it must have
adequate risk management and must be
well capitalized, which for a local
Underwriter, shall be evidenced by
compliance with the risk-based CAR
prescribed under Sec. X116 for the past
sixty (60) days immediately preceding the
date of application where applicable.
(2) UnSD Registry
(a) It may be a UB, a KB, or such other
specialized entity that may be qualified by
the Monetary Board.
(b) It must be a third party that has no
subsidiary/affiliate or any other relationship
with the Issuing Bank that would
undermine its independence.
(c) It must not be an Underwriter or a
Market Maker of the UnSD.
(d) It must have adequate facilities
and the organization to do the following:
(i) Maintain certificates of unissued

UnSD and the Registry Book which must be
electronic if the UnSD is in scripless form;
(ii) Deliver transactions within the
agreed trading period; and
(iii)Issue Registry Confirmations and
UnSD Certificates if they are not in
scripless form to buyers/holders of UnSD.
(e) It must have a CAMELS composite
rating of at least 3 in the last regular
examination, where applicable.
(3) Selling Agent
(a) It may be any financial institution
with dealership or brokering license and
is under the supervision of the BSP.
(4) Market Maker
(a) It must be a financial institution
with a dealership or brokering license and
is under the supervision of the BSP.
(c) It must have adequate risk
management and must be well capitalized
as evidenced by compliance with the risk
based CAR prescribed under Sec. X116 for the
past sixty (60) days immediately preceding the
date of application where applicable.
There is no need for a Market Maker if
the UnSD is to be held on to maturity:
Provided, That this condition is properly
disclosed in the Purchase Advice, Registry
Confirmation and Prospectus/Information
Disclosure.
(5) Public Trustee
(a) It must be a financial institution
authorized by the BSP to engage in trust
and other fiduciary business.
Part I - Page 29
X119.4
06.12.31
(c) It must have adequate risk

management system and must be well
capitalized as evidenced by compliance
with the risk-based CAR prescribed under
Sec. X116 for the past sixty (60) days
immediately preceding the date of
application where applicable. The sixty
(60)-day compliance period with the riskbased CAR shall be waived in evaluating
a banks eligibility to act as Public Trustee
for another banks UnSDs Tier 2 offering,
if the former bank has instituted remedial
measure to its CAR deficiency by issuing
Tier 2 capital.
(d) It may also be the UnSD Registry.
(e) A Public Trustee is mandatory if
UnSD shall be offered to the general public
and optional if offering will be limited to
qualified investors/buyers.
d. Functions/Responsibilities of other
parties involved
The respective parties shall have,
among others, the following functions/
responsibilities:
(a) Conducts due diligence on the
Issuing Bank and determines the valuation/
pricing of the primary issue;
(b) Prepares
the
prospectus/
information disclosure, including updates
for multi-tranche UnSD issues;
(c) Formulates the distribution/
allocation plan for the initial offering and
ensures proper and orderly distribution of
the primary offering of the UnSD;
(d) Disseminates information to
prospective investors of UnSD on the
terms and conditions of the issue (including
information of non pre-termination at the
initiative of the holder and the liquidity
mechanism in secondary trading) and the
rights and obligations of the holder, issuer,
Underwriter/Arranger, UnSD Registry,
Selling Agent, Market Maker and Public
Trustee; and
(e) When selling to its clients, it must
perform the functions/responsibilities of the
Selling Agent under Item d(3) hereof.
Part I - Page 30
(2) UnSD Registry

(a) Keeps unissued UnSD certificates
and maintains UnSD Registry book, which
must be electronic if UnSD is scripless in
form;
(b) Records initial issuance of the
UnSD and subsequent transfer of
ownership;
(c) Issues UnSD Certificates for
primary offerings if UnSD is not scripless
in form;
(d) Issues Registry Confirmation to
buyers/holders;
(e) Functions as paying agent for
periodic interest and principal payments;
(f) Monitors compliance with the
prohibitions on holdings of UnSD, as
prescribed under Subsec. X119.8 hereof;
and
(g) Submits within ten (10) banking
days from end of reference month, an
exception report on Subsec. X119.8 to the
appropriate department of the SES. This
report shall be classified as a Category B
report.
(3) Selling Agent
(a) Verifies identity of each investor to
ascertain that Subsec. X119.8 is not
violated and applies appropriate standards
to combat money laundering as required
under existing BSP regulations;
(b) Determines the suitability of the
investor and ensures that he fully
understands the features of the UnSD and
the risk involved therein; and
(c) Issues the Purchase Advice for the
primary offering of the UnSD to the buyer
and sends a copy thereof to the UnSD
Registry.
The sale or distribution of UnSD may
also be performed by the issuer through
its head office and branches subject to the
following conditions:
(i) The in-house distribution shall not
exceed fifty percent (50%) of the total
issue;
(ii) The sale/distribution must be
done under the supervision of an officer of
X119.4
06.12.31
the Issuing Bank who is capable of

determining the suitability of the investor
and ensuring that he fully understands the
risk in UnSD;
(iii)All personnel assigned to
distribute/sell UnSD must be capable of
determining the suitability of the investor
and ensuring that he fully understands the
risk in UnSD; and
(iv)It must also perform the
functions/ responsibilities of the Selling
Agent.
(4) Market Maker
(a) Sets an independent pricing for the
secondary trading of UnSD;
(b) Posts daily the bid and offer prices
for the UnSD on the screen of at least one
(1) of the information providers until the
operation of a fixed income exchange for
UnSD;
(c) Verifies identity of each investor to
ascertain that Subsec. X119.8 is not
violated and applies appropriate standards
to combat money laundering as required
(d) Determines the suitability of the
buyer and ensures that he fully
understands the risk involved in a UnSD;
(e) Issues the Purchase Advice for the
secondary trading of the UnSD to the
buyer and sends a copy thereof to the
UnSD Registry; and
(f) Ensures secondary market
transfers and registration in coordination
with the UnSD Registry.
(5) Public Trustee
(a) Monitors compliance of the Issuing
Bank with the terms and conditions of the
UnSD;
(b) Monitors compliance of the other
parties with their functions and
responsibilities prescribed under this
Memorandum;
(c) Reports regularly to UnSD holders
non-compliance of the Issuing Bank with
the terms and conditions of the UnSD and
such other developments that adversely
affect their interest and advise them of the

course of action they should take to protect
their interest; and
(d) Act on behalf of the UnSD holders
in case of bankruptcy of the Issuing Bank.
e. Change of Underwriter/Arranger,
UnSD Registry, Selling Agent(s), Market
Maker(s). After an application for authority
to issue a UnSD has been approved by
the BSP, the Issuing Bank cannot change
its Underwriter/Arranger, UnSD Registry,
Selling Agent(s), Market Maker(s) and
Public Trustee without prior BSP approval.
f. Agreements Between Issuing
Bank and other parties involved. The
agreements between the Issuing Bank and
the UnSD Registry/Selling Agent(s)/Market
Maker(s)/Public Trustee shall comply with
the provisions of Sec. X169 on bank
service contracts. The Issuing Bank shall
be liable to investors for any damages
caused by actions of the UnSD Registry,
Selling Agent(s) and Market Maker(s),
which are contrary to the agreements
entered into.
g. Purchase Advice and Registry
Confirmation. The Purchase Advice and
Registry Confirmation shall contain all the
terms and conditions on the issuance of
UnSD and shall conspicuously state the
following caveat:
(1) This UnSD is not a deposit and is
not insured by the PDIC.
(2) This UnSD is neither secured nor
covered by a guarantee of the Issuer/
Underwriter/Arranger or related party of
the Issuer/Underwriter/Arranger or other
arrangement that legally or economically
enhances the priority of the claim of any
holder of the UnSD as against depositors
and other creditors (for LT2); depositors,
other creditors and holders of LT2 capital
instruments (for UT2); and depositors,
other creditors and holders of LT2 and UT2
capital instruments (for HT1);
(3) This UnSD does not have a priority
claim, in respect of principal and coupon
Part I - Page 31
X119.4
06.12.31
payments in the event of winding-up of the

Issuing Bank, which is higher than or equal
with that of depositors and other creditors
(for LT2); depositors, other creditors and
holders of LT2 capital instruments (for UT2);
and depositors, other creditors, holders of LT2
and UT2 capital instruments (for HT1);
(4) This UnSD is ineligible as collateral
for a loan granted by the Issuing Bank, its
subsidiaries or affiliates;
(5) This UnSD cannot be terminated
by the holder nor by the Issuing Bank (for
HT1). This UnSD cannot be terminated
by the holder nor by the Issuing Bank
before (maturity date) (for UT2 and LT2).
However, negotiations/transfers from
one (1) holder to another do not constitute
pre-termination.
(Item g(5) above shall apply if the
Issuing Bank commits no pre-termination
of the UnSD. Otherwise, it shall read as
follows):
This UnSD cannot be terminated by the
holder (for HT1). This UnSD cannot be
terminated by the holder before (maturity
date) (for UT2 and LT2).
However, it may be pre-terminated at
the instance of the Issuing Bank upon:
(a) Prior approval of the BSP subject
to the following conditions:
(i) The repayment is in connection
with call option after a minimum of five
(5) years from issue date, or even within
the first five (5) years from issue date when:
(aa)The UnSD was issued for the
purpose of a merger with or acquisition by
the Issuing Bank and the merger or
acquisition is aborted;
(bb)There is a change in tax status of
the UnSD due to changes in the tax laws
and/or regulations; or
(cc)The UnSD does not qualify as
HT1, UT2 or LT2 capital, as the case may
be, as determined by the BSP; and
(ii) The debt is simultaneously
replaced with the issues of new capital
which is neither smaller in size nor of
Part I - Page 32
lower quality than the original issue, unless

the Issuing Banks capital adequacy ratio
remains more than adequate after
redemption; and
(b) Prior notice to holders on record.
Negotiations/transfers from one (1)
holder to another do not constitute pretermination.
In case there is a feature allowing onetime step-up in the coupon rate in
conjunction with a call option, the step-up
shall be after a minimum of ten (10) years
for HT1 and UT2 and five (5) years for LT2
after the issue date, and shall not result in an
increase over the initial rate that is more than:
(i) 100 basis points less the swap
spread between the initial index basis and
the stepped-up index basis; or
(ii) Fifty percent (50%) of the initial
credit spread less the swap spread
between the initial index basis and the
stepped-up index basis.
The swap spread shall be fixed at the
pricing date and reflect the differential in
pricing on that date between the initial
reference security or rate and the steppedup reference security or rate;
(6) The holders/owners of this UnSD
cannot set off any amount they owe to the
Issuing Bank against this UnSD.
(7) All negotiations/transfers of this
UnSD prior to maturity must be coursed
through a Market Maker until the operation
of a fixed income exchange.
(8) The payment of principal may be
accelerated on this UnSD only in the event
of insolvency of the Issuing Bank.
(9) The coupon rate, or the formulation
for calculating coupon payments shall be
fixed at the time of the issuance of the
UnSD and may not be linked to the credit
standing of the Issuing Bank;
(10)The payment of principal and
coupon due on this UnSD shall not be made
to the extent that such payment will cause
the Issuing Bank to become insolvent (for
HT1 and UT2);
X119.4
06.12.31
(11)The holders of the UnSD shall be

treated as if they were holders of a specified
class of share capital in any proceedings
commenced for the winding-up of the
Issuing Bank (for HT1 and UT2);
(Item g(11) above shall apply if such
is the manner by which the UnSD is to be
treated in loss situation. Otherwise, it shall
read as follows):
This UnSD shall be automatically
converted into common shares or
perpetual and non-cumulative preferred
shares (for HT1) or into common shares or
perpetual and non-cumulative preferred
shares or perpetual and cumulative
preferred shares (for UT2) upon occurrence
of certain trigger events as follows:
(a) Breach of minimum capital ratio;
(b) Commencement of proceedings
for winding-up of the Issuing Bank; or
(c) Upon appointment of receiver for
the Issuing Bank.
The rate of conversion shall be fixed
at the time of the subscription of this UnSD.
(12)The amount and timing of coupons
on this UnSD shall be discretionary on the
Issuing Bank where the Issuing Bank has
not paid or declared a dividend on its
common shares in the preceding financial
year, or determines that no dividend is to
be paid on such shares in the current
financial year; and the Issuing Bank shall
have full control and access to waived
payments (for HT1). The coupon payment
on this UnSD shall be deferred where the
Issuing Bank has not paid or declared a
dividend on its common shares in the
preceding financial year, or determines that
no dividend is to be paid on such shares in
the current financial year (for UT2);
(13) The coupon on this UnSD shall be
non-cumulative. In case there is a feature
allowing withheld cash coupon to be
payable in scrip or shares of stock, the
shares of stock to be issued shall not be of
lower quality capital than the UnSD (for
HT1); and
(14) The coupon to be paid on this UnSD

shall be paid only to the extent that the
Issuing Bank has profit distributable
determined in accordance with existing
BSP regulations (for HT1).
N.B.: The last five (5) items (i.e., 10,
11, 12, 13 and 14) are applicable only to
UnSD qualifying under HT1 and UT2
capital, as the case may be. The foregoing
information shall also be shown in the
Prospectus/Information Disclosure.
h. Pre-termination by the Issuer
(1) The Issuing Bank may preterminate the UnSD subject to the
(a) The Information Disclosure,
Purchase Advice and Registry Confirmation
shall include the information that the
Issuing Bank has the option to preterminate the UnSD;
(b) Compliance with Items a(2)(a)vii,
b(1)(h)v or b(2)(c)iv as may be
applicable, of Appendix 63a;
(c) Prior notification of thirty (30) banking
days or more to holders of record; and
(d) Notwithstanding any agreement to
the contrary, the Issuer shall shoulder the
tax due, if any, on the interest income
already earned by the holders.
the completion of the pre-termination
transaction, the Issuing Bank must submit
a written notice to the appropriate
department of the SES of the following:
(a) Actual pre-termination date; and
(b) New capital composition.
i. Primary offering/secondary trading
(1) The primary offering of a UnSD
shall be executed through an Underwriter
under a firm commitment or through an
Arranger on a best effort basis. Initial sale/
distribution of UnSD shall be made by a
Selling Agent, the Underwriter/Arranger
or, to a limited extent, the Issuing Bank
itself. Subsequent negotiations in
secondary trading must be executed
through authorized Market Maker(s) until
Part I - Page 33
X119.4 - X119.5
06.12.31
the operation of a fixed income

exchange.
The primary offering as well as the
secondary trading of a UnSD must be
supported by Purchase Advice to be issued
by the Selling Agent or the Market Maker,
as the case may be, with the original given
to the buyer and a second copy to the
UnSD Registry. Upon presentation by the
buyer of the original copy of Purchase
Advice, the UnSD Registry shall:
(a) record the primary issuance in the
Registry Book and issue a Registry
Confirmation and the corresponding UnSD
certificate to the buyer if it is not scripless
in form; and
(b) register the transfer of ownership
in the UnSD Registry Book and issue a
Registry Confirmation to the buyer, in the
case of secondary trading.
(As amended by Memorandum to All Banks dated 23 March
2006)
X119.5 Private or negotiated

issuance of UnSD
a. Private or negotiated issuance of
UnSD is the issuance of UnSD to qualified
investors/buyers, whether individuals or
institutions as defined under Subsec.
X119.7. There is no limit on the number
of qualified investors/buyers and on the
sale or negotiation of the UnSD: Provided,
That such sale or negotiation shall only be
made to another qualified investor/buyer.
b. Application for authority of the
Issuing Bank
(1) The application shall be signed by
the president or officer of equivalent rank
of the Issuing Bank.
(2) The application for authority on
each negotiated UnSD issue shall be filed
with the appropriate department of the
SES.
(3) The application shall be
accompanied by:
(a) A certified true copy of the
resolution of the Issuing Banks board of
Part I - Page 34
directors authorizing the private/negotiated

issuance of UnSD indicating, among
others, the amount, duration/maturity,
interest rate, purpose or intended use of
proceeds of the UnSD;
(b) A Certification by the corporate
secretary that the issuance of the UnSD
has been approved by the stockholders
owning or representing at least two-thirds
(2/3) of the outstanding capital stock of the
Issuing Bank if the UnSD has convertibility
feature;
(c) A written confirmation from the
the Issuing Bank stating that all the
conditions for UnSD under Item a(2)(a)
excluding Item (xiii) on underwriting
provision or Item b(1)(h) excluding Item
(xi) on underwriting provision or Item
b(2)(c) excluding Item (ix) on
underwriting provision of Appendix 63a
are complied with and that such conditions
shall be contained in the UnSD Certificates,
Prospectus/Information Disclosure and
Debt Agreement/Contract.
(d) An undertaking from the president
or officer of equivalent rank of the Issuing
Bank that the UnSD shall be issued only
to qualified investors/buyers;
(e) A certification from the president
or officer of equivalent rank of the Issuing
Bank that the investor/buyer shall not be
among those prohibited to hold UnSD
under Subsec. X119.8 and that the Issuing
Bank has applied appropriate standards to
combat money laundering as required
(f) A written undertaking from the
the Issuing Bank not to support, directly
nor indirectly, by extending loans, issuing
payment guarantees or otherwise, the
buyer/holder of the UnSD of the Issuing
Bank; and
(g) Specimen of the proposed Debt
Agreement/Contract containing the terms
and conditions of the UnSD issuance.
X119.5
06.12.31
(h) A written external legal opinion

that all the conditions for UnSD under Item
a(2)(a), Item b(1)(h) or Item b(2)(c), of
Appendix 63a including the subordination
(for HT1, UT2 and LT2) and loss absorption
(for HT1 and UT2) features, have been
met.
c. Additional Requirements for the
Private Issuance of UnSD. Within ten (10)
banking days after issuance of the UnSD,
the Issuing Bank shall submit the following
additional requirements to the appropriate
department of the SES:
(1) A written notice of the actual date
of full receipt of proceeds, accompanied
by a certification from the president or
officer of equivalent rank of the Issuing
Bank stating that the pre-qualification
requirements under Subsec. X119.3 have
been complied with up to the time of full
receipt of proceeds;
(2) A copy of each of the duly signed
Debt Agreements/Contracts between the
Issuing Bank and the investor/buyer as
specified in the application for authority to
issue negotiated UnSD; and
(3) A copy of the income tax return of
the investor/buyer in case of a natural
person.
d. Debt agreement/contract
The Debt Agreement/Contract shall
contain all the terms and conditions on the
issuance of UnSD and shall conspicuously
state the following caveat:
(1) This UnSD is not a deposit and is
not insured by the PDIC.
(2) This UnSD is neither secured nor
covered by a guarantee of the Issuer or
related party of the Issuer or other
arrangement that legally or economically
enhances the priority of the claim of any
holder of the UnSD as against depositors
and other creditors (for LT2); depositors,
other creditors and holders of LT2 capital
instruments (for UT2); and depositors, other
creditors and holders of LT2 and UT2
capital instruments (for HT1).
(3) This UnSD does not have a priority

payments in the event of winding-up of the
Issuing Bank, which is higher than or equal
(for LT2); depositors, other creditors and
holders of LT2 capital instruments (for
UT2); and depositors, other creditors,
holders of LT2 and UT2 capital instruments
(for HT1);
(4) This UnSD is ineligible as collateral
for a loan made by the Issuing Bank, its
subsidiaries or affiliates.
(5) This UnSD cannot be terminated
by the holder nor by the Issuing Bank (for
HT1). This UnSD cannot be terminated
by the holder nor by the Issuing Bank
before (maturity date) (for UT2 and LT2).
Item d(5) above shall apply if the
Issuing Bank commits no pre-termination
of the UnSD. Otherwise, it shall read as
follows:
This UnSD cannot be terminated by the
holder (for HT1). This UnSD cannot be
terminated by the holder before (maturity
date) (for UT2 and LT2).
However, it may be pre-terminated at
the instance of the Issuing Bank upon:
(a) Prior approval of the BSP subject
(i) The repayment is in connection
with call option after a minimum of five
(5) years from issue date, or even within
the first five (5) years from issue date when:
(aa) The UnSD was issued for the
the Issuing Bank and the merger or
acquisition is aborted;
(bb)There is a change in tax status of
the UnSD due to changes in the tax laws
(cc)The UnSD does not qualify as
HT1, UT2 or LT2 capital, as the case may
be, as determined by the BSP; and
(ii) The debt is simultaneously
replaced with the issues of new capital
which is neither smaller in size nor of
Part I - Page 35
X119.5
06.12.31
lower quality than the original issue, unless

the Issuing Banks capital adequacy ratio
redemption; and
(b) Prior notice to investors/buyers.
In case there is a feature allowing onetime step-up in the coupon rate in
conjunction with a call option, the step-up
shall be after a minimum of ten (10) years
(for HT1 and UT2) and five (5) years (for
LT2) after the issue date, and shall not result
in an increase over the initial rate that is
more than:
(i) 100 basis points less the swap
(ii) Fifty percent (50%) of the initial
credit spread less the swap spread between
the initial index basis and the stepped-up
index basis.
The swap spread shall be fixed at the
pricing date and reflect the differential in
pricing on that date between the initial
(6) This UnSD may only be sold,
transferred or negotiated to another
qualified investor/buyer;
(7) The holders/owners of this UnSD
cannot set off any amount they owe to the
Issuing Bank against this UnSD.
(8) The payment of principal may be
accelerated on this UnSD only in the event
of insolvency of the Issuing Bank.
(9) The coupon rate, or the formulation
for calculating coupon payments shall be
fixed at the time of the issuance of the
UnSD and may not be linked to the credit
standing of the Issuing Bank;
(10)The payment of principal and
coupon due on this UnSD shall not be made
to the extent that such payment will cause
the Issuing Bank to become insolvent (for
HT1 and UT2);
(11)The holders of the UnSD shall be
treated as if they were holders of a
specified class of share capital in any
Part I - Page 36
proceedings commenced for the windingup of the Issuing Bank (for HT1 and UT2);
(Item d(11) above shall apply if such
is the manner by which the UnSD is to be
treated in loss situation. Otherwise it shall
read as follows):
This UnSD shall be automatically
converted into common shares or perpetual
and non-cumulative preferred shares (for
HT1), or into common shares or perpetual
and non-cumulative preferred shares or
perpetual and cumulative preferred shares
(for UT2) upon occurrence of certain trigger
events as follows:
(a) Breach of minimum capital ratio;
(b) Commencement of proceedings
for winding up of the Issuing Bank; or
(c) Upon appointment of receiver for
the Issuing Bank.
The rate of conversion shall be fixed at
the time of the subscription of this UnSD.
(12) The amount and timing of coupons
on this UnSD shall be discretionary on the
Issuing Bank where the Issuing Bank has
not paid or declared a dividend on its
common shares in the preceding financial
year, or determines that no dividend is to
financial year; and the Issuing Bank shall
have full control and access to waived
payments (for HT1). The coupon payment
on this UnSD shall be deferred where the
Issuing Bank has not paid or declared a
preceding financial year, or determines that
no dividend is to be paid on such shares in
the current financial year (for UT2);
(13) The coupon on this UnSD shall be
non-cumulative. In case there is a feature
allowing withheld cash coupon to be
payable in scrip or shares of stock, the
shares of stock to be issued shall not be of
lower quality capital than the UnSD (for
HT1); and
(14)The coupon to be paid on this UnSD
shall be paid only to the extent that the
Issuing Bank has profit distributable
X119.5 - X119.6
06.12.31
determined in accordance with existing

BSP regulations (for HT1).
N.B.: The last five (5) items (i.e., 10,
11 12, 13 and 14) are applicable only to
UnSD qualifying under HT1 and UT2
capital, as the case may be.
e. Pre-termination by the Issuer
(1) The Issuing Bank may preterminate the negotiated UnSD subject to
the following conditions:
(a) The Debt Agreement/Contract
Issuing
Bank has the option to preterminate the UnSD;
(b) Compliance with Item a(2)(a)vii,
Item b(1)(h)v or Item b(2)(c)iv, as may
be applicable, of Appendix 63a;
(c) Prior notification of thirty (30)
banking days or more to lender/investor;
and
(d) Notwithstanding any agreement to
the contrary, the Issuer shall shoulder the
tax due, if any, on the interest income
already earned by the holders.
the completion of the pre-termination
transaction, the Issuing Bank must submit
a written notice to the appropriate
department of the SES of the following:
(a) Actual pre-termination date; and
(b) New capital composition.
f. Functions/Responsibilities of the
Issuing Bank
(1) Prepares
the
Prospectus/
Information Disclosure on the UnSD
issues;
(2) Disseminates to prospective
investors/buyers information on the terms
and conditions of the UnSD (including
information on no pre-termination at the
initiative of the holder, and where
applicable, the liquidity mechanism in
secondary trading) and the rights and
obligations of the holder and the issuer;
(3) Keeps unissued UnSD certificates
and maintains UnSD Register;
(4) Records initial issuance of UnSD

and subsequent transfer of ownership;
(5) Issues UnSD Certificates and
Registry Confirmation to original
investors/buyers;
(6) Issues Registry Confirmation to
subsequent buyers/holders where
applicable;
(7) Ensures compliance with X119.8
and applies appropriate standards to
combat money laundering as required
under existing BSP regulations; and
(8) Determines suitability of the
investors/buyers (original or subsequent)
and assures that he fully understands the
risk involved in a UnSD.
X119.6 Issuance overseas of

UnSD. The overseas issuance of UnSD
shall also be subject to the provisions of
Sec. X119 except for the following:
a. Overseas issuance of UnSD may
be allowed to be governed by the laws
and applicable rules and regulations of the
country where the UnSD is to be issued
with respect to form, qualified investors/
buyers and subsequent sale or
negotiation;
b. The requirements under Subsecs.
X119.1 c(1), X119.4 g(1), and X119.5 d(1)
and d(6) may be allowed to be dispensed
with in cases of overseas issuance of
UnSD; and
c. The subsequent sale/negotiation in
the Philippines of the UnSDs originally
issued overseas shall not be allowed
unless all the requirements for domestic
issuance are complied with.
It is however understood that the
applicant/issuer shall also secure the
approval of the International
Department (ID) of the BSP for the
overseas issuance of foreign currency
denominated UnSD.
Part I - Page 36a
X119.7 - X119.9
06.12.31
X119.7 Qualified investors/buyers

Qualified buyers of, or suitable investors
in, a UnSD can be any of the following:
a. Banks;
b. Investment house (IH);
c. Insurance company;
d. Pension or retirement fund of other
entities which have no subsidiary/affiliate
or any other relationship with the Issuing
Bank;
e. Investment company;
f. Funds managed by another bank
or other entities duly authorized to engage
in trust or other fiduciary business;
g. Domestic corporate or institutional
investors with total assets of at least P100.0
million;
h. Foreign multilateral organizations
such as, the ADB and IFC;
i. High net-worth individual investor/
buyer who is sophisticated enough to
understand and appreciate the significance
of and the risk involved in UnSD as may
be indicated by his/her educational
background and/or employment/business
experience; and
j. Stockholder, director or officer
with the rank of at least a vice-president of
the Issuing Bank.
X119.8 Prohibitions on holdings of
UnSD. The following persons and entities
are prohibited from purchasing/holding
UnSD of the Issuing Bank:
a. Subsidiaries and affiliates of the
Issuing Bank including their subsidiaries
and affiliates; and
b. Common trust funds (CTFs)
managed by the Trust Department of the
Issuing Bank, its subsidiaries and affiliates
or other related entities: Provided, That
other funds being managed by the Trust
Department of the Issuing Bank, its
subsidiaries and affiliates or other related
entities are allowed to purchase or invest
in UnSD of the Issuing Bank subject to the
Part I - Page 36b
(1) That the fund owners give prior

authority/instruction to the Trust
Department to purchase or invest in the
UnSD of the Issuing Bank; and
(2) That the authority/instruction of the
fund owner and his understanding of the
risk involved in purchasing or investing in
UnSD are fully documented.
For purposes of this Section, an affiliate
refers to a related entity linked by means
of ownership of at least twenty percent
(20%) to not more than fifty percent (50%)
of its outstanding voting stock.
X119.9 Accounting treatment
Obligations arising from the issuance of
UnSD (including the portion exceeding the
allowable ceiling for purposes of determining
the qualifying capital as provided in
Appendix 63a) shall be booked under the
following General Ledger account titles:
a. Other Equity Instruments
Others for HT1 capital which shall be
presented in the equity accounts section
of the Balance Sheet which shall be
accounted for in accordance with the
provisions of PAS 32; and
b. Unsecured Subordinated Debt
for UT2 and LT2 capital, which shall be
presented in the liability accounts section
of the balance sheet.
However, only the proceeds actually
received from the UnSD issues, (i.e., net of
discounts, if any, and transaction costs) shall
be considered as HT1, UT2 or LT2 capital.
The proceeds actually received from
the UnSD issues, (i.e., net of discounts, if
any, and transaction costs) eligible as UT2
or LT2 capital shall be considered in the
computation of loanable funds for purposes
of determining compliance with the
mandatory allocation of funds for agri-agra
credit required under P.D. No. 717, as
amended.
A UnSD eligible as HT1, UT2 or LT2
capital shall be accounted for in accordance
with PAS 32 and PAS 39.
X119.9 - X120
08.12.31
A UnSD denominated in foreign

currency eligible as HT1, UT2 or LT2 may
be recorded in the regular banking unit (RBU)
or foreign currency deposit unit (FCDU/
EFCDU) of the issuing bank: Provided, That
if booked in the FCDU/ EFCDU, the
following conditions shall be strictly observed:
a. The issuing bank shall indicate in
its application that the UnSD shall be
booked in its FCDU/EFCDU;
b. The UnSD shall remain in the FCDU/
EFCDU books until full settlement; and
c. The UnSD shall be issued only to
non-residents and offshore banking units
(OBUs) in accordance with Section 72.2.e
of CB Circular No. 1389, as amended.
X119.10 - X119.12 (Reserved)

X119.13 Sanctions. Without
prejudice to the other sanctions prescribed
under Section 37 of R.A. No. 7653 and the
provisions of Section 16 of R.A. No. 8791,
sanctions shall be imposed on the Issuing
Bank, UnSD Registry and other parties
involved in the transaction for failure to
perform their respective functions/
responsibilities and for non-disclosure or
misrepresentation of information, as follows:
a. On the issuing bank
(1) Suspension of its authority to issue
remaining tranches, if any;
(2) Disqualification from future
issuance of UnSD;
(3) Disqualification of all outstanding
issues as eligible Tier 2 capital; and
(4) Monetary penalty of P30,000 for
each violation.
b. On the underwriter/arranger
(1) Disqualification from being
underwriter/arranger for three (3) years; and
each violation.
c. On the UnSD registry
appointed as UnSD Registry for three (3)
years; and

each violation.
d. On the selling agent/market maker
appointed as selling agent or market
maker for three (3) years; and
each violation.
e. On the public trustee
appointed as public trustee for three (3)
years; and
each violation.
f. On the certifying officer - A fine
of P5,000 per day from the time of required
disclosure up to the time disclosure was
made, or from the time misrepresentation
was made up to the time the information
was corrected, and a possible
disqualification if warranted by the gravity
of the offense committed.
g. On the responsible officer - A fine
of P30,000 for participating in or tolerating
the non-disclosure or misrepresentation of
information, and a possible disqualification
if warranted by the gravity of the offense
committed.
Sec. X120 Interim Tier 1 Capital for Banks

Under Rehabilitation. The following are
the guidelines on the issuance of capital
notes that will qualify as interim Tier 1
capital for banks under rehabilitation:
a. Banks under rehabilitation shall be
allowed, upon prior BSP approval, to issue
capital notes that shall qualify as interim
Tier 1 capital: Provided, That the PDIC shall
be the holder of the said capital notes:
Provided, further, That any transter from
PDIC of said capital notes shall require
prior BSP approval.
b. The interim Tier 1 capital notes
shall have the following minimum
features:
(1) It must be perpetual, unsecured
and subordinated;
Part I - Page 36c
X120
08.12.31
(2) It must be issued and fully paid-up.

Only the net proceeds received from the
issuance shall be included as Tier 1 capital.
The proceeds of the issuance must be
immediately available without limitation
to the bank;
(3) It must neither be secured nor
covered by a guarantee of the issuer or
related party or other arrangement that
legally or economically enhances the priority
of the claim of the PDIC as against
depositors, other creditors of the bank and
holders of LT2 and UT2 capital instruments;
(4) The PDIC, as holder of the interim
capital notes must not have a priority claim,
in respect of its principal and coupon
payments of the interim Tier 1 capital notes
in the event of winding up of the bank,
which is higher than or equal with that of
holders of LT2 (e.g. limited life redeemable
preferred stock) and UT2 (e.g. perpetual
and cumulative preferred stock) capital
instruments. The PDIC must waive its
right to set-off any amount it owes the bank
against any subordinated amount owed to
it due to the interim Tier 1 capital notes;
(5) It must not be repayable without
the prior approval of the BSP: Provided,
That repayment may be allowed only in
connection with a call option after a
minimum of five (5) years from issue date:
Provided, however, That a call option may
be exercised within the first five (5) years
from issue date upon entry of new
investors: Provided, further, That such
repayment prior to maturity shall be
approved by the BSP only if it is
simultaneously replaced with issues of new
capital which is neither smaller in size nor
of lower quality than the original issue,
unless the banks capital ratio remains more
than adequate after redemption.
It must not contain any clause, which
requires acceleration of payment of principal,
except in the event of insolvency. The

agreement governing its issuance must not
contain any provision that mandates or
creates an incentive for the bank to repay
the outstanding principal of the interim
Tier 1 capital notes, e.g., a cross-default or
negative pledge or a restrictive covenant,
other than a call option, which may be
exercised by the bank;
(6) The PDIC, as holder of the interim
Tier 1 capital notes, shall have the right to
convert, upon prior notice to the BSP, the
interim Tier 1 capital notes into perpetual
and non-cumulative preferred shares
convertible into common shares which
may be sold to new investors: Provided,
That the rate of conversion shall be fixed at
the time of subscription of the interim Tier 1
capital notes;
(7) The
coupons
must
be
non-cumulative;
(8) The bank must have full discretion
over the amount and timing of coupon
payments and it must have full control and
access to waived payments;
(9) Any coupon to be paid must be paid
only to the extent that the bank has profits
distributable determined in accordance
with existing BSP regulations. The coupon
rate, or the formulation for calculating
coupon payments must be fixed at the time
of issuance of the interim Tier 1 capital
notes and must not be linked to the credit
standing of the bank;
(10)It must not have step-up provisions
in the coupon rate in conjunction with the
call option;
(11)All other transactions involving the
capital notes shall require prior BSP approval.
c. The bank must submit a written
opinion from its external auditor that the
features of the interim Tier 1 capital notes
shall be accounted for as equity instruments
in accordance with PAS 32.
(Circular No. 595 dated 11 January 2008)
Part I - Page 36d
X121 - X121.3
05.12.31
E. LIBERALIZED ENTRY AND SCOPE

OF OPERATIONS OF FOREIGN BANKS
Sec. X121 Liberalized Entry and Scope of
Operations of Foreign Banks. The following
rules shall govern the liberalized entry and
scope of operation of foreign banks.
X121.1 Modes of entry of foreign
banks. With prior approval of the
Monetary Board, foreign banks may
operate in the Philippines through any one
(1) of the following modes:
a. By acquiring, purchasing or
owning up to sixty percent (60%) of the
voting stock of an existing domestic bank
(including banks under receivership or
liquidation, provided no final court
liquidation order has been issued);
b. By investing in up to sixty percent
(60%) of the voting stock of a new banking
subsidiary incorporated under the laws of
the Philippines; or
c. By establishing branches with full
banking authority.
Interested foreign banks shall file with
the Office of the Governor, BSP, their
application for authority to operate in the
Philippines through any of the modes of
entry mentioned above. The application
must be submitted in the prescribed forms
shown in Appendix 2.
a. Investment in an existing
domestic bank. A foreign bank seeking
to acquire, purchase or own up to sixty
percent (60%) of the voting stock of an
existing domestic bank needs only to
meet the selection criteria under Subsec.
X121.3.
b. Establishment of subsidiary or
branch. Any foreign bank seeking to
establish a new banking subsidiary or to
establish branches with full banking authority,
in addition to satisfying the criteria prescribed
Subsec. X121.3, must be -
(1) Widely-owned and publicly-listed

(listed in any stock exchange authorized
by the government of the country of
origin), unless more than fifty percent
(50%) of the capital stock of said foreign
bank applicant is owned by the
government of its country of origin. The
bank is considered as widely-owned if it
has at least fifty (50) stockholders without
any stockholder owning more than fifteen
percent (15%) of its capital stock:
Provided, That if the bank is owned/
controlled by a holding company, this
requirement shall apply to the holding
company; and
(2) Among the top 150 banks in the
world or the top five (5) banks in its
country of origin.
The determination of the top 150
banks in the world may be based on lists
prepared and published by reputable
organizations/publications.
The determination of the top five (5)
banks in the country of origin shall be
based on information supplied by the bank
supervisory authorities in which country
of origin as to the ranking of banks based
on net worth. However, the Monetary
Board may also use total assets as a
criterion: Provided, That the same shall be
based on book accounts only and on the
consolidated balance sheet of the head
office and all branches, excluding
subsidiaries and affiliates.
In addition to the foregoing
requirements, the foreign bank applicant
must be in compliance with capital
requirements as prescribed by the laws
and regulations of its country of origin.
X121.3 Guidelines for selection
The following factors shall be considered
in selecting the foreign bank which will
be allowed to invest in majority of the
voting stock of an existing domestic bank
or to establish a subsidiary or branch in
the Philippines.
Part I - Page 37
X121.3 - X121.4
05.12.31
a. Geographic representation and

complementation. Representation from
the different parts of the world and/or the
international financial centers shall be
ensured.
b. Strategic trade and investment
relationships between the Philippines and
the country of incorporation of the foreign
bank. Consideration shall be given to the
countries of origin of applicant foreign
banks(1) With substantial financial
assistance to, and loans and investments,
past and present, in the Philippines; and
(2) With which the Philippines has
significant volume of trade especially to
those with which the country has
substantial net exports.
c. Relationship between the
applicant bank and the Philippines.
Consideration shall be given to the
capability of the foreign bank to promote
trade with, and to bring foreign investments
into, the Philippines. Long standing
financial and commercial relationship
with, and assistance extended to, the
Philippines, shall likewise be taken into
account.
d. Demonstrated capacity, global
reputation for financial innovations and
stability in a competitive environment of
the applicant. Demonstrated capacity and
stability may be indicated by the fact that
the applicant ranks among the top 150 in
the world or top five (5) in its country of
origin. Global reputation may be
measured by international presence, e.g.,
number of branches with full banking
authority outside of its country of origin.
e. Reciprocity rights enjoyed by
Philippine banks in the applicants
country. Philippine banks shall enjoy
reciprocity rights in the applicant's country.
f. Willingness to fully share
technology. The applicant bank shall
submit an undertaking to this effect
together with its application.
Part I - Page 38
X121.4 Capital requirements

a. For locally incorporated subsidiaries
- The minimum capital required for locally
incorporated subsidiaries of foreign banks
shall be the same as that prescribed by the
Monetary Board for domestic banks of the
same category.
b. For foreign bank branches with full
banking authority - A foreign bank
authorized to establish branches with full
banking authority in the Philippines shall
inwardly remit and convert into Philippine
currency, as permanently assigned capital,
the U.S. Dollar equivalent of P210.0 million
at the exchange rate prevailing on 05 June
1994 (the date of effectivity of R.A. No.
7721), i.e., P26.979 to US$1. The foreign
bank shall thereby be entitled to establish
three (3) branches in locations of its choice.
For purposes of this Subsection, the
same foreign bank may open three (3)
additional branches in locations designated
by the Monetary Board by inwardly
remitting and converting into Philippine
currency, as additional permanently
assigned capital the U.S. Dollar equivalent
of P35.0 million for every additional
branch, computed at the same exchange
rate of P26.979 to US$1. The Monetary
Board, in determining the location of the
next three (3) branches established pursuant
to the provisions of R.A. No. 7721, shall
consider, among other things, development
requirements of a region and the
contribution of a bank branch may make
to regional development, expansion of
basic financial services and enhanced
access to credit by small and medium-scale
enterprises: Provided, That the total number
of branches for each new foreign bank
entrant shall not exceed six (6).
c. For foreign banks with existing
branches in the Philippines (1) A foreign bank with existing branch
or branches in the Philippines upon the
effectivity of R.A. No. 7721 shall comply
with the required permanently assigned
X121.4 - X121.5
05.12.31
capital by inwardly remitting and converting

into Philippine currency the U.S. Dollar
equivalent of P210.0 million computed at the
same exchange rate of P26.979 to US$1,
within a period of one and one-half (1)
years from 05 June1994.
The said foreign bank may establish up
to six (6) branches in addition to its branch
or branches existing as 05 June1994, the
first three (3) additional branches in
locations of its choice, and the next three
(3) additional branches in locations
designated by the Monetary Board:
Provided, That upon establishing any
additional branch, the bank shall comply
immediately with the permanently assigned
capital mentioned in the next preceding
paragraph: Provided, further, That the said
permanently assigned capital shall be the
capital for the banks first three (3) additional
branches, including its existing branch or
branches, and for each branch established
in addition thereto, the U.S. Dollar
equivalent of P35 million computed at the
same exchange rate of P26.979 to US$1,
shall be inwardly remitted and converted
into Philippine currency.
If the permanently assigned capital of
the existing branch/es of said foreign bank
that has been converted to Philippine
currency is sufficient to cover the abovementioned amount of assigned capital
required for the additional branches, no
additional assigned capital shall be
required; otherwise, the foreign bank shall
comply immediately with the capital
requirements under the above paragraphs.
(2) Foreign banks with existing
branches in the Philippines on 5 June1994
shall have a period of one and one-half (1)
years from said date within which to comply
with the ratio between the assigned capital
and the Net due to head office, branches,
subsidiaries and offices outside the
Philippines prescribed in Subsec. X121.6:
Provided, That upon establishing any
additional branch pursuant to the provisions
of this Section, the bank shall comply

immediately with the aforesaid ratio.
d. Capital of Foreign Bank Branch
Authorized to Operate as Expanded
Commercial Bank - The capital of a
Philippine branch of a foreign bank which
is authorized to operate as a UB may consist
of its permanently assigned capital plus the
Net due to account: Provided, That at no
time shall the aggregate of said accounts
fall below the amount required for UB
authority under Subsecs. X106.1 and
X106.2: Provided, further, That the amount
of the Net due to which may be added to
permanently assigned capital shall not
exceed the equivalent of three (3) times the
amount of the permanently assigned capital.
The Net due to as described in the
preceding paragraph shall be net of the
items enumerated in Subsec. X121.5d.
e. Applicable Exchange Rate - It is
understood that the exchange rate of
P26.979 to US$1 mentioned hereinabove
is applicable only to the minimum capital
requirements provided in Items b and c of
this Subsection. For other purposes, the
exchange rate prevailing at the time of
remittance shall be applicable.
X121.5 Composition of capital
accounts; compliance with capital ratios
a. Foreign bank branches shall
comply with the same capital ratios
applicable to domestic banks of the same
category.
b. For Philippine branches of foreign
banks, the term capital shall include
permanently assigned capital which shall
be inwardly remitted and converted to
Philippine currency and Net due to up to
an amount prescribed under Subsec.
X121.6. Should there be any Net due from
head office, branches, subsidiaries and
other offices outside the Philippines, the
same shall be deducted from the capital
accounts for purposes of determining
compliance with the required capital ratios.
Part I - Page 39
X121.5 - X121.8
05.12.31
c. Earnings not remitted to the head

office shall constitute part of the Net due to
of the local branch of a foreign bank:
Provided, That said bank may elect to
consider such earnings as part of the
assigned capital, in which case said earnings
may no longer be remittable to the head office.
d. The term Net due to shall be net of:
(1) unbooked valuation reserves and other
capital adjustments as may be required by
the BSP; (2) total outstanding unsecured
credit accommodations, both direct and indirect,
to DOSRI; and (3) deferred income tax.
e. Where a foreign bank has more
than one (1) branch or banking office in
the Philippines, all its branches and
banking offices shall be treated as a unit
for purpose of determining compliance
with the legal reserve requirement and
with capital requirement prescribed in
laws/regulations.
X121.6 Prescribed ratio of Net due
to and permanently assigned capital. The
amount of Net due to which may be added
to permanently assigned capital for
purposes of determining compliance with
capital ratios prescribed in laws/regulations
shall not exceed the equivalent of four (4)
times the amount of permanently assigned
capital: Provided, That for the purpose of a
foreign bank branch seeking to operate as a
UB, the ratio shall not exceed three (3) times
as provided in Item "d" of Subsec. X121.4.
At least fifteen percent (15%) of the Net
due to required to comply with the
prescribed capital ratio shall be inwardly
remitted and converted into Philippine
currency: Provided, That amounts invested
in productive enterprises or utilized by
Philippine companies for export activities,
including foreign currency denominated
loans granted to Philippine exporters and
loans for productive purposes such as the
following: agriculture, fisheries and forestry;
manufacturing; mining; public utilities;
construction; and home building, need not
Part I - Page 40
be subject to conversion into Philippine

currency.
If there is non-compliance with the
prescribed fifteen percent (15%) of Net due
to required to be inwardly remitted and
converted to pesos, the bank shall
immediately inwardly remit and convert to
Philippine currency the amount of the
deficiency.
Branches of foreign banks shall submit
the reports prescribed in Appendix 6 to
show compliance with the requirement that
at least fifteen percent (15%) of its Net due
to shall be inwardly remitted and converted
into Philippine currency.
X121.7 Head office guarantee. The
head office of foreign bank branches shall
guarantee prompt payment of all liabilities
of its Philippine branches, as well as the
observance of the constitutional rights of
the employees of such branches.
X121.8 Scope of authority for locally
incorporated subsidiaries of foreign banks
as well as branches with full banking
authority. Subsidiaries and branches of
foreign banks established under Subsec.
X121.1 shall be allowed to perform the same
functions and enjoy the same privileges of,
and be subject to the same limitations
imposed upon, a Philippine bank of the same
category. Privileges shall include the eligibility
to operate under an expanded commercial
banking authority subject to compliance with
existing rules and regulations and the
guidelines enumerated in Appendix 3 on the
matter: Provided, That foreign bank branches
authorized to operate under an expanded
commercial banking authority shall be
exempted from the requirement of publicly
offering at least ten percent (10%) of its shares.
The limitations include, among other things,
the single borrower's limit, the capital-to-risk
assets ratio, and the capitalization and other
requirements under R.A. No. 337, as
amended, and other related laws.
X121.9 - X121.11
05.12.31
X121. 9 Limitations
a. Limit on mode of entry for each
foreign bank - A foreign bank may avail itself
of only one (1) mode of entry provided
under Items "a" to "c" of Subsec. X121.1:
Provided, That entry pursuant thereto shall
not preclude investment in the equity of a
domestic bank pursuant to the provisions
of R.A. No. 337, as amended. A foreign
bank that comes in via the establishment of
branches under R.A. No. 7721 may still
invest in the equity of a domestic bank
subject to the provisions of R.A. No. 337,
as amended.
b. Limit on the number of foreign
banks which may be allowed to establish
branches. The Monetary Board may
authorize up to six (6) new foreign banks
to establish branches. However, upon
recommendation of the Monetary Board,
the President of the Republic of the
Philippines may approve, as the national
interest may require, four (4) additional new
foreign banks to establish branches, subject
to compliance with provisions of this
Section.
c. Limit on the period for entry
through establishment of branches. Foreign
banks shall be allowed entry under Item c
of Subsec. X121.1 by establishing branches
with full banking authority within five (5)
years from 05 June 1994. The entry of
foreign banks through the establishment of
a new banking subsidiary and through
investment in existing domestic banks shall
not be subject to any time limitation.
d. Control of the resources of the
banking system. The Monetary Board shall
adopt such measures as may be necessary
to ensure that at all times the control of
seventy percent (70%) of the resources or
assets of the entire banking system is held
by domestic banks more than fifty percent
(50%) of the subscribed capital of which is
owned by Filipinos. Said measures may
include review of, among other things, the
existing policies on -
(i) the granting of authority to establish

additional subsidiaries and branches;
(ii) the granting of authority to (a)
engage in expanded commercial banking
and trust activities; (b) open an FCDU; (c)
collect taxes and customs duties; and (d)
invest in the equity of other entities; and
(iii) access to rediscounting facilities.
X121.10 Change from one mode
of entry to another
a. As a general rule, a foreign bank which
has been authorized to operate in the
Philippines through any one (1) of the
allowable modes of entry may change to another
mode by giving up the first mode it availed of.
b. A foreign bank which pursuant to
Items a and b of Subsec. X121.1, has
established or acquired a banking subsidiary
may sell its stockholdings therein and may
apply for authority to establish a branch
subject to the provisions of Subsec. X121.9c
and to the following conditions:
(i) that the disposition/sale of its
stockholdings in the subsidiary is done
within five (5) years from 5 June 1994;
(ii) that the foreign bank qualifies under
the provisions of Subsec. X121.2b; and
(iii) that the limit of ten (10) foreign
banks establishing branches as a mode of
entry has not yet been reached.
c. Foreign banks with existing
branches in the Philippines, as well as those
that may be allowed to establish branches
under R.A. No. 7721, may incorporate
under Philippine laws, in which case said
foreign banks may own up to sixty percent
(60%) of the voting stock of the new bank.
X121.11 Listing of shares with the
Philippine Stock Exchange. At least ten
percent (10%) of the capital of banks in
which foreign banks have invested under
Subsec. X121.1a and b, shall be listed in
the PSE within a reasonable period of time
after the investment is made as may be
determined by the Monetary Board.
Part I - Page 41
X121.12 - X126.1
05.12.31
X121.12 Applicability to Philippine

corporations
a. Any right, privilege or incentive
granted to foreign banks or their subsidiaries
or affiliates under R.A. No. 7721 shall be
equally enjoyed by, and extended under the
same conditions to, domestic banks.
b. Philippine corporations, whose
shares of stocks are listed in the PSE, or
which are of long standing for at least ten
(10) years, as determined by the Monetary
Board, shall have the right to acquire,
purchase or own up to sixty percent (60%)
of the voting stock of a domestic bank:
Provided, That said corporations, as well
as foreign banks may own up to sixty
percent (60%) of the voting stock of only
one (1) domestic bank.
F. STOCK, STOCKHOLDERS
AND DIVIDENDS
Sec. X126 Shares of Stock of Banks. The
following shall govern transactions affecting
shares of stock of banks and the limits on
stockholdings in a single bank or in several
banks.
X126.1 Limits of stockholdings in a
single bank. The stockholdings of an
individual, family, corporate or business
group in any bank shall be subject to the
limits prescribed in Sections 11, 12, 13 and
14 of R.A. No. 8791.
a. Foreign individuals and non-bank
corporations may own or control up to forty
percent (40%) of the voting stock of a
domestic bank: Provided, That the
aggregate foreign-owned voting stock
owned by foreign individuals and non-bank
corporations in a domestic bank shall not
exceed forty percent (40%) of the
outstanding voting stock of the bank. The
percentage of foreign-owned voting stock
in a bank shall be determined by the
Part I - Page 42
citizenship of the individual stockholders

in that bank.
b. A Filipino individual and a
domestic non-bank corporation may each
own up to forty percent (40%) of the voting
stock of a domestic bank. There shall be
no ceiling on the aggregate ownership by
such individuals and corporations in a
domestic bank.
c. A natural person and a corporation
or corporations which are wholly-owned,
or a majority of the voting stock of which
is owned, by him may own only up to a
combined forty-percent (40%) of the voting
stock of a domestic bank.
d. The right of Philippine
corporations, however, under Section 8 of
R.A. No, 7721, as implemented under
Subsec. X121.12 shall continue to be in
force and effect.
e. Stockholdings of family groups or
related interests. Individuals related to
each other within the fourth degree of
consanguinity or affinity, whether
legitimate, illegitimate or common-law,
shall be considered family groups or
related interests but may each own up to
forty percent (40%) of the voting stock of a
domestic bank: Provided, That said
relationship must be fully disclosed in all
transactions by such corporations or related
groups or persons with the bank.
f. Two (2) or more corporations
owned or controlled by the same family
group of same group of persons shall be
considered related interests but may each
own up to forty percent (40%) of the voting
stock of a domestic bank: Provided, That
said relationship must be fully disclosed
in all transactions by such corporations or
related groups of persons with the bank.
g. Ceiling on stockholdings in a Coop
Bank. The equity investment of any
cooperative in any Coop Bank shall not
exceed forty percent (40%) of the
subscribed capital stock of such Coop
Bank.
X126.1 - X126.2
05.12.31
h. Stockholdings in excess of ceilings.

Unless otherwise allowed under existing
laws, rules or regulations, any or all, as the
case may be, of the above-mentioned
stockholders owning more than forty
percent (40%) of the voting stock of a KB
or a UB shall comply with said ceiling
within thirty (30) days from 13 May 2002.
i. Determination of foreign-owned
voting stock and citizenship of corporate
stockholders in a bank as well as the
relationship of stockholders of a bank.
(1) The percentage of foreign-owned
voting stocks in a bank shall be determined
by the citizenship of all the stockholders in
that bank.
(2) The citizenship of the corporation,
which is a stockholder of a bank shall
follow the citizenship of the controlling
stockholders of the corporation,
irrespective of the place of incorporation.
For purposes hereof, the term controlling
stockholders shall refer to stockholders
holding more than fifty percent (50%) of
the voting stock of the corporate
stockholders of the bank.
(3) The relationship of individuals who
are stockholders of a bank shall be
determined in accordance with the
provisions of Articles 963 to 966 of the Civil
Code of the Philippines.
X126.2 Transfer of shares. The
following regulations shall govern transfer
of voting shares of stocks in banks:
a. Unlawful and void transactions
involving voting stocks in banks. The
following transactions, to the extent of the
excess over any of the prescribed ceilings
are hereby declared unlawful.
(1) The sale or transfer of voting stock
of a UB, a KB or an RB1 to any individual,
if such sale or transfer, in itself, or in relation
with another previous sale or transfer shall
result in the ownership by an individual in
excess of forty percent (40%) of the voting
stock of the bank.
(2) The sale or transfer of voting stock

of banks to any individual or entity, if such
sale or transfer, in itself, or in relation with
another previous sale or transfer shall result
in the ownership by foreign persons and/
or foreign non-bank corporations in excess
of forty percent (40%) of the voting stock
in a UB or a KB and sixty percent (60%) in
case of a TB.
(3) The sale or transfer of voting stocks
of UB or KB to any corporation, if such
sale or transfer, in itself, or in relation with
another previous sale or transfer shall result
in the ownership by such corporation in
stock of the bank, unless allowed under
R.A. No. 7721 and R.A. No. 8791.
(4) The sale or transfer of voting shares
of stocks of UBs or KBs or RBs1 to (a) any
natural person; and (b) any corporation or
corporations which are wholly-owned or
a majority of the voting stock of which is
owned by such natural person if such sale
of transfer in itself, or in relation with
another previous sale or transfer, shall
result in the combined ownership by such
natural person and such corporations in
stock of the bank, unless allowed under
R.A. No. 7721 and R.A. No. 8791.
(5) Any arrangement, such as voting
trust agreement or proxy, which vests in
any person or corporation the right to vote
or control voting stocks in banks, if such
agreement in itself, or in relation with
another previous similar agreement or
previous sale or transfer shall result in the
acquisition of control, in excess of the
prescribed limitations.
b. Duties of a corporate secretary. In
all transactions, which may lawfully come
to the knowledge of the corporate secretary
involving transfer of voting shares of stock
or registration of voting trust agreements,
or any form of agreement vesting the right
to vote the voting shares of stock of the
bank, the corporate secretary shall:
1 Effective 03 April 2002
Part I - Page 43
X126.2
05.12.31
(1) ascertain the identity and citizenship

of the transferee, voting trustee, proxy or
person vested with the right to vote, and for
this purpose, he should require the
transferee, voting trustee, proxy or the
person vested with the right to vote to submit
proof of citizenship, which may consist, in
case of a corporation, of a certified true copy
of the articles of incorporation, accompanied
by the affidavit of the corporate secretary
of the corporation, certifying to the
correctness and accuracy of the list of
stockholders and the percentage of shares
owned by them;
(2) require the transferee, voting
trustee, proxy or person vested with the right
to vote, at the time of the receipt of the
request for transfer or registration, or at any
time thereafter, to disclose all information with
respect to persons related to the transferee,
voting trustee, proxy or person vested with
the right to vote, within the fourth degree of
consanguinity or affinity, whether legitimate,
illegitimate or common-law, as well as
corporations, partnerships or associations
where the transferee, voting trustee, proxy or
person vested with the right to vote has
controlling interest, and the extent thereof;
(3) require the transferee to execute an
affidavit (sample format shown in Appendix
4) stating, among other things, that the
transferee is a bona fide owner of shares of
stock and that he acknowledges full
awareness of the requirements of the law
and the prohibitions against exceeding
ownership of voting stocks beyond the
prescribed limitations.
If the request for transfer or the
arrangement sought to be registered will
patently cause the voting stocks of a person
or a corporation, to exceed the limits
prescribed by law, the corporate secretary
shall deny the transfer or registration and
forthwith inform the parties to the
transaction in writing. Simultaneous with
the notice to the parties, the corporate
secretary shall submit a written report to the
Part I - Page 44
Governor of the BSP of the attempted illegal

transfer or arrangements, together with the
names, addresses of parties and other
pertinent data with respect to the particular
stock transaction.
In the event the corporate secretary has
reason to doubt the legality of the transfer
or of the arrangement sought to be
registered, he may commence an action
before the appropriate body;
(4) promptly inform stockholders who
have reached any of the ceilings imposed
by law, of their ineligibility to own or control
more than the applicable ceiling; and
(5) disclose the ultimate beneficial
owners of bank shares held in the name of
Philippine Central Depository (PCD)
Nominee Corporation in the quarterly
report on Consolidated List of Stockholders
and Their Stockholdings which report shall
be made under oath by the authorized bank
officers/signatories. Any violation of the
provision of this Subsection shall be subject
to a penalty of P30,000 per day until the
correct report is submitted to the BSP.
c. Transfers requiring prior Monetary
Board approval
(1) Prior approval of the Monetary
Board shall be required on the following:
(a) Any sale or transfer or series of sales
or transfers which will result in ownership
or control of more than twenty percent
(20%) of the voting stock of a bank by any
person whether natural or juridical or which
will enable such person to elect, or be
elected as, a director of such bank; and
(b) Any sale or transfer or series of sales
or transfers which will effect a change in
the majority ownership or control of the
voting stock of the bank from one (1) group
of persons to another group: Provided, That
in no case shall such sale or transfer be
approved unless the bank concerned shall
immediately comply with the prescribed
minimum capital requirement for new
banks, notwithstanding any approved
capital build-up program.
X126.2 - X126.4
05.12.31
(2) For purposes of these regulations,

the sale or transfer of voting stock shall refer
to sales or transfers of voting stock which
are allowed under existing laws or BSP rules
and regulations and which have not been
registered/recorded in the transfer book/
stock ledger or other records of banks.
(3) Sanctions. Any violation of the
provisions under Items c(1)(a) and (b)
above shall be subject to the sanctions
prescribed under Sections 36 and 37 of R.A.
No. 7653, without prejudice to the
appropriate legal actions for the rescission
and invalidation of the sale or transfer.
d. Requirement for newly established
banks. Entities which may hereinafter apply
for a license to engage in banking business
shall, before being allowed to operate,
submit (1) An alphabetical list of stockholders
with the number and percentage of voting
stock owned by them; and
(2) A separate list containing the names
of persons who own voting stocks in banks
and who are related to each other within
the fourth degree of consanguinity or
affinity, whether legitimate, illegitimate or
common-law, with proper indication of the
combined percentage of voting stocks held
by them in the particular bank, as well as
corporations which are wholly-owned or a
majority of the stock of which is owned by
any of such persons, including their
subsidiaries.
X126.3 Other foreign equity
investment in domestic banks. Except as
otherwise covered under Sec. X121 and
Subsec. X126.1, the following guidelines
shall be observed on equity investments of
foreigners in domestic banks:
a. The prior authority of the Monetary
Board shall be obtained by foreign banks,
including their subsidiaries and their
holding companies having majority
holdings in such foreign banks, whenever
acquiring more than forty percent (40%) of
the voting stock of a domestic bank, including

foreign-owned shares outstanding and
foreign-held as of 27 April 1973 and which
continued to be held by the foreign
stockholder up to the date of the acquisition
by the foreign banks.
b. (Deleted by Cir. No. 256 dated 15
August 2000)
c. The prior authority of the Monetary
Board is not required if the foreign
investor is (1) an individual, (2) a nonfinancial entity, or (3) a non-bank financial
entity which is not owned or controlled by
a bank, its subsidiary or holding company,
and the investor is acquiring foreign-owned
shares in existing domestic banks:
Provided, That said shares were outstanding
and foreign-held as of 27 April 1973 and
which continued to be foreign-held up to
the date of acquisition by the foreign
investor.
d. The maximum stockholdings
foreigners may own in domestic banks shall
continue to be governed by existing
provisions of law.
e. Only foreign-owned shares directly
funded by inward remittance of foreign
exchange sold to the local banking system
are qualified for registration with the BSP
through its appropriate department for
capital repatriation and remittance of profits/
dividends privileges, in accordance with
existing BSP rules and regulations.
X126.4 Convertibility of preferred
stock to common stock. Out of the
convertible preferred shares of stock which
KBs/TBs may henceforth be authorized to
issue, at least fifty percent (50%) of each
such issue, shall be convertible into
common stock at the option of the holders
thereof after five (5) years from date of issue:
Provided, however, That :
a. The bank concerned may allow the
conversion of such preferred stock into
common stock even before the lapse of five
(5) years from date of issue;
Part I - Page 45
X12.4 - X126.5
07.12.31
b. At the time of the sale of the

preferred stock, both classes thereof (one
with convertibility feature and the other
without convertibility feature) shall be
offered to the purchasers, with the
purchasers having the option to acquire
either or both classes of preferred stock; and
c. Preferred shares of stock with a
cumulative feature issued by banks shall
automatically be convertible into common
shares of stock at the option of the holders
thereof whenever the right as may be
acquired by the holders by virtue of such
cumulative feature are not satisfied by the
bank within a period of three (3) years from
date of issue.
X126.5 Issuance of redeemable
shares: conditions; certification and report;
sanctions
a. Conditions. Banks may issue
redeemable shares subject to the following
conditions:
(1) The applicant bank prior to the
approval of the amendment of articles of
incorporation to issue redeemable preferred
shares, has complied with the requirements
under Items B1 to B6, Appendix 5.
The articles of incorporation of an
applicant bank shall incorporate the
conditions in Items a (3)(a), a(3)(b),
a(3)(c) and a(3)(d) of this Subsection.
(2) The applicant bank prior to the
issuance of redeemable shares shall comply
with, in addition to the conditions in Item
(1) above, the requirements under Items
B7, B8, and B12 to B16, Appendix 5.
(3) The applicant bank after the
issuance of redeemable shares shall comply
with the following:
(a) Redemption of shares shall be
allowed at the specific dates or periods fixed
for redemption only upon prior approval
of the BSP and, where the conditions of the
issuance specifically state, only if the shares
redeemed are replaced with at least an
equivalent amount of newly paid-in shares
Part I - Page 46
so that the total paid-in capital stock is

maintained at the same level immediately
prior to redemption: Provided, That the
redemption shall not be earlier than five
(5) years after the date of issuance:
Provided, further, That such redemption
may not be made where the bank is
insolvent or if such redemption will cause
insolvency, impairment of capital or
inability of the bank to meet its debts as
they mature;
(b) A sinking fund for the redemption
of preferred shares is to be created upon
their issuance. This is to be effected by
the transfer of free surplus to a restricted
surplus account. The fund shall not be
available for dividends. The guidelines for
the establishment and administration/
management of sinking fund for the
redemption of redeemable private
preferred shares are shown in
Appendix 47.
(c) The issuing bank shall not treat in
any way redeemable preferred shares as
time deposit, deposit substitute or other
form of borrowings;
(d) No dividend shall be declared or
paid on redeemable shares in the absence
of sufficient undivided profits, free surplus
and approval of the BSP;
(e) The issuing bank shall execute
within ten (10) days after the first issuance
a Deed of Undertaking (see Appendix 42),
to be signed by its directors and principal
officers, binding them to comply with the
requisites and conditions set forth in Items
(a) to (d) above; and
(f) The conditions in Items (3)(a),
(3)(b), (3)(c) and (3)(d) above shall be
incorporated in the certificates of stock.
(g) Shares issued with the replacement
requirement upon redemption shall be
eligible as Upper Tier 2 capital for purposes
of computing qualifying capital as provided
in Subsec. X116.1. Shares issued without
such condition shall be eligible as Lower
Tier 2 capital.
X126.5 - X126.10
07.12.31
b. Certification and report. The bank

shall submit within fifteen (15) days after
every issuance of at least twenty percent
(20%) of the redeemable shares whether
issued in series or at one (1) time, a
certification signed by its President/
Chairman under oath, stating that the
requirements under Items a(1) and a(2)
above, including all other conditions that the
BSP may impose, have been complied with.
The applicant bank shall, not later than
ten (10) days from the end of reference year,
submit a yearly report of issuances of
preferred shares to the appropriate
department of the SES indicating therein the
name/s of the subscriber/s, the date the
shares were issued and the number/amount
of shares issued.
c. Sanctions. Any violation of the
foregoing provisions shall be subject to the
following sanctions:
(1) On the bank:
(a) For failure to comply with Items
a(3)(a) to a(3)(d) above:
i. Suspension of branching privilege;
ii. Prohibition against granting of new
unsecured loans to DOSRI;
iii. Prohibition against declaration of
dividends;
iv. Denial of access to BSP
v. Revocation of authority to accept
government deposits and to handle
government funds as a result of agency
agreements with the BIR, SSS, etc.
(b) For failure to infuse capital in an
amount at least equivalent to amount of
redeemed shares as required in Item a(3)(a):
i. Sanctions in Item (a) above;
ii. No new loans and investments,
except in government securities;
iii. P1,000 fine per day until the
required infusion is made.
(c) If the certification submitted by the
bank required in these guidelines is found
to be false, suspension of authority to issue
preferred shares for one (1) year.
(d) For failure to submit report of

issuance of redeemable preferred shares, a
fine of P1,200 for UBs/KBs; P600 for TBs;
and P180 for RBs/Coop Banks per day of
default until the report is submitted.
(2) On the directors and officers:
(a) For violation of any of the terms of
the Deed of Undertaking, the following shall
be imposed against the officers and directors
of the bank who signed the deed:
i. First offense - A fine of P500 per day
for each violation from the time the violation
was committed or up to the time the
violation is corrected;
ii. Second and subsequent offenses
A fine of P5,000 per day from the time the
violation was committed up to the time the
violation is corrected.
(b) If the certification submitted by the
bank as required in these guidelines is found
to be false, a fine of P5,000 per day from
the time the certification was made up to
the time the certification was found to be false,
shall be imposed against the certifying officer.
X126.6 Stock options/warrants. A

bank may grant options/warrants to subscribe
at par to its capital stock: Provided, That:
a. Provisions authorizing such options/
warrants shall be embodied in its articles of
incorporation and in its by-laws; and
b. Such options/warrants may be
granted for a maximum period of three (3)
years from the date such options/warrants
become effective.
X126.7 - X126.9 (Reserved)
X126.10 Dealings with stockholders
and their related interests. Dealings of a
bank with any of its stockholders and their
related interests shall be upon terms not less
favorable to the bank than those offered to
others. Towards this end, every natural
person acquiring shares cumulatively
amounting to at least two percent (2%) of the
Part I - Page 47
X126.10 - 2127.2
07.12.31
total subscribed capital of a domestic bank

must disclose all relevant information on all
persons related to him within the fourth
degree of consanguinity or affinity, whether
legitimate, illegitimate or common law as
well as corporations, partnership or
associations where he has controlling
interests. A corporation acquiring shares
amounting to at least two percent (2%) of the
total subscribed capital of a domestic bank
must disclose its controlling stockholders or
group of stockholders as well as the
corporations, partnerships or association
where such controlling stockholders or group
of stockholders have controlling interest.
The foregoing information shall also be
disclosed in cases of the following
transactions: availment of credit facility
from the bank; purchase or sale of asset
from/to the bank; leasing property from or
to the bank; providing janitorial,
messengerial, security and other services to
the bank; and such other transactions as may
be required to be disclosed by the Monetary
Board. Where the stockholdings of such
individual/organization together with his/its
related interests amount to at least two
percent (2%) of the total subscribed capital
stock of the bank, the foregoing transactions
shall be subject to the procedural
requirements and the reportorial
requirements prescribed under Secs. X334
and X335, respectively.
Sec. 1127 Shares of Stock of Universal/
Commercial Banks. The following
guidelines shall also govern shares of stock
in UBs and KBs.
1127.1 Limits on stockholdings in
several banks. Stockholders affiliated to
each other through a common interest
herein termed a business group or any
corporation or association majority or all
of the equity of which is owned by a
business group may not control more than
one (1) KB nor more than one (1) UB or both.
Part I - Page 48
Any natural person or a family group,

who, together, with any corporation
majority or all of the equity of which is
owned by such person or family group,
owns more than forty percent (40%) of the
voting stock of any UB or KB may not
acquire more than forty percent (40%) of
the voting stock in any other UB or KB, even
if the shares of stock are being acquired from
a natural person in a single transaction and
the stockholding is in excess of forty percent
(40%) of the banks voting stock.
For purposes of determining
applicability of the limitations provided in
this Section, stockholders shall be deemed
as affiliated to each other through common
business interest or a business group in
cases where the holdings of such
stockholders altogether constitute a majority
or control in one (1) or more enterprises.
1127.2 - 1127.5 (Reserved)
Sec. 2127 Shares of Stock of Thrift Banks
The following regulations shall also govern
shares of stock in TBs.
2127.1 Moratorium on ownership
ceilings. Stockholdings in a TB shall be
exempt from the ownership ceilings
prescribed under Subsec. X126.1 until 16
March 2005.
2127.2 Preferred shares. Private
development banks may also issue ordinary
preferred shares of stock to private persons,
other than the preferred stock representing
government
counterpart
capital
contribution: Provided, That said preferred
stock sold to private persons shall be
governed by the pertinent BSP regulations
for preferred stock issued to private
investors.
Preferred shares of stock of private
development banks held by DBP/LBP and
sold thereafter to private persons may, at
the option of the purchasers, be retained
2127.2 - 3127.3
05.12.31
with the same rights as when such shares

of stock were held by DBP/LBP, or
converted at not less than par to common
shares or to ordinary preferred shares of
the class issued to private shareholders.
2127.3 - 2127.5 (Reserved)
Sec. 3127 Shares of Stock of Rural Banks
and Cooperative Banks. The following
rules shall govern stockholdings in RBs and
Coop Banks.
3127.1 Moratorium on ownership
ceiling. Individual stockholdings in RBs in
excess of the forty percent (40%) ceiling as
of 02 April 2002 and as provided in Section
11 of R.A. No. 8791 may be retained:
Provided, That such excess stockholdings
were approved by the Monetary Board:
Provided, further, That such stockholdings
shall not be further increased, but may be
reduced and once reduced, shall not
thereafter be increased beyond the forty
percent (40%) ceiling prescribed under said
Section 11.
Any request for exemption from the
prescribed ownership ceilings of individual/
non-bank/corporate stockholdings shall be
submitted to the Monetary Board for approval
through the appropriate SED of the BSP and
the exemption shall be reflected in the
required report on stock transactions. In cases
where unsubscribed shares of stock are sold
to any person other than the existing
stockholders, the banks corporate secretary
shall execute a certificate under oath that all
the pertinent requirements of the Corporation
Code on a valid stock transfer/subscriptions
have been complied with.
3127.2 Government-held shares
The articles of incorporation of RBs or the
articles of cooperation of Coop Banks shall
provide for: (a) common stock with the
power to vote; (b) preferred stock to
represent the counterpart capital of the LBP,
DBP or any government-owned or

controlled bank or financial institution,
which shall be non-voting and preferred as
to assets upon liquidation; and (c) preferred
stock with such rights, voting powers,
preferences and restrictions, as may be
approved by the Monetary Board. Preferred
and common stocks shall have a minimum
par value of ten pesos (P10) per share:
Provided, That this requirement shall not
apply to existing RBs whose par value per
share of stock is less than ten pesos (P10).
An RB may not issue no-par value stock.
For Coop Banks, preferred and common
shares shall have a minimum par value of
P1,000 per share for national Coop Banks;
and P100 per share for local Coop Banks:
Provided, That a Coop Bank may not issue
no-par value shares.
The LBP, the DBP, or any governmentowned or controlled bank or financial
institution, on representation of the said
private shareholders but subject to the
investment guidelines, policies and
procedures of the bank or financial institution
and upon approval of the Monetary Board,
shall subscribe to the capital stock of any RB/
Coop Bank, which shall be paid in full at the
time of subscription in an amount equal to
the fully paid subscribed and unimpaired
capital of the private shareholders or such
amount as the Monetary Board may prescribe
as may be necessary to promote and expand
rural economic development and/or
cooperative movement.
3127.3 Limits on stockholdings in
several rural banks. Any individual and/or
his wholly or majority-owned corporation
or non-bank corporations may own up to
100% of the voting stock in three (3) RBs:
Provided, That the individual and/or its
subsidiary/ies, may thereafter own shares
in any number of other RBs only to such an
extent as would not enable this group of
investors to elect by virtue of its shareholdings
a director of each additional RB.
Part I - Page 49
3127.4 - X136.1
05.12.31
3127.4 Convertibility of preferred

stock to common stock. RBs may convert
their unissued preferred shares into
common stock.
In the case of sale by the DBP, LBP or
any government-owned or controlled bank
or financial institution of preferred stock to
private persons, such stock may be
converted into common stock: Provided,
That pending amendment of the banks
articles of incorporation, if necessary for the
purpose of reflecting the conversion, the
transfer shall be recorded by the bank in its
stock and transfer book and such
shareholders shall thereafter enjoy all the
rights and privileges appurtenant to the
converted stock. The certificates for the
government preferred stocks so transferred
shall be surrendered and cancelled and the
corresponding common stock certificates
shall be issued.
The corporate secretary of the bank shall
submit to the appropriate SED and the SEC
a report of every transfer of preferred stock
from the LBP, DBP or any governmentowned or controlled bank or financial
institution to private shareholders within five
(5) banking days from the date of such transfer.
When all the preferred shares of stocks
held by the LBP, DBP or any governmentowned or controlled bank or financial
institution have been sold to private
shareholders, the banks articles of
incorporation shall be amended to reflect
the conversion, if any, of the preferred
shares of stock into common stock.
For this purpose, a certificate that all
preferred shares have been sold and
transferred to private shareholders shall be
issued, duly signed by the president, the
corporate secretary, and a majority of the
board of directors. The bank shall submit
copies of such certificate and the amended
articles of incorporation to the BSP for the
issuance of a certificate of authority for the
purpose of registering the amended articles
with the SEC.
Part I - Page 50
3127.5 Equity investment by holding

corporations. With the exception of
shareholdings of non-bank corporations in
the equities in RBs as provided for under
Section 11 of R.A. No. 8791, and of
Filipino-controlled domestic banks, the
capital stock of any RB shall be fully owned
and held directly or indirectly by citizens
of the Philippines or corporations,
associations or cooperatives qualified under
Philippine laws to own and hold such
capital stock.
The equity investment of any non-bank
corporation in any RB shall not exceed forty
percent (40%) of the voting stock of such RB.
A holding corporation for purposes of
this Subsection shall refer to a corporation
primarily organized to hold equities in RBs.
Sec. X136 Dividends. Pursuant to Section
57 of R.A. No. 8791, no bank shall declare
dividends greater than its accumulated net
profits then on hand, deducting therefrom
its losses and bad debts. Neither shall the
bank declare dividends if, at the time of
declaration, it has not complied with the
provisions of Subsec. X136.2.
X136.1 Definitions. For purposes of
this Section, the following definitions shall
apply:
a. Bad debts - shall include any debt
on which interest is past due for a period
of six (6) months, unless it is well secured
and in process of collection.
A loan payable in installments with an
automatic acceleration clause shall be
considered a bad debt within the
contemplation of this Subsection where
installments or amortizations have become
past due for a period of six (6) months,
unless the loan is well secured and in
process of collection. For a loan payable
in installment without an acceleration
clause, only the installments or
X136.1 - X136.2
07.12.31
amortizations that have become past due

for a period of six (6) months and which
are not well secured and in the process of
collection shall be considered bad debts
within the contemplation of this Section.
b. Well secured - A debt shall be
considered well secured (or fully secured),
if it is covered by collateral in the form of a
duly constituted mortgage, pledge, or lien
on real or personal properties, including
securities, having a loan value sufficient to
discharge the debt in full, including
accrued interest and other pertinent fees
and expenses.
c. In process of collection - A debt due
to a bank shall be considered in process of
collection when it is the subject of
continuing extrajudicial or judicial
proceedings aimed towards its full
settlement or liquidation or otherwise to
place it in current status.
The extrajudicial proceedings, such as
the writing of collection or demand letters,
must have been initiated by the bank and/
or its lawyers before the interest or
installments or amortizations on the debt
have become past due and unpaid for a
period of six (6) months.
The debt shall continue to be
considered in process of collection for a
period of six (6) months counted from date
of the first collection or demand letter and
if, within this period, the debtor fails to
make a payment of at least twenty percent
(20%) of the outstanding balance of the
principal on his account, plus all interest
which may have accrued thereon, the same
shall automatically be classified as bad debts
unless judicial proceedings are instituted.
The debt shall continue to be
considered in process of collection during
the pendency of the judicial proceedings.
When judgment against the debtor has
been obtained, the bank must be active in
enforcing the judgment for the debt to
continue to be considered in process of
collection.
X136.2 Requirements on the

declaration of dividends. At the time of
declaration, banks shall have complied with
the following:
a. Clearing account with the BSP is not
overdrawn;
b. Liquidity floor requirement for
government funds;
c. Minimum capitalization requirement
and risk-based capital ratio;
d. Prescribed EFCDU/FCDU cover
consisting of:
(1) Thirty percent (30%) liquidity cover; and
(2) 100% asset cover.
e. Statutory and liquidity reserves
requirement;
f. No
past
due
loans
or
accommodations with the BSP or with any
institution;
g. No net losses from operations in any
one (1) of the two (2) fiscal years
immediately preceding the date of dividend
declaration;
h. Has not committed any of the
following major violations:
(1) Loans
and
other
credit
accommodations and guarantees granted in
excess of the single borrowers limit;
(2) Loans
and
other
credit
accommodations granted/extended in
excess of the ceilings on accommodations
to DOSRI;
(3) Unsafe and unsound banking practice
as defined under existing BSP regulations;
(4) Equity investments in excess of the
prescribed ceilings;
(5) Investments in real estate, bank
premises and equipment in excess of
(6) Major violations/exceptions cited in
the previous examination not duly acted
upon or not yet corrected;
(7) Transactions or activities without
prior approval or necessary license from the
BSP such as, but not limited to, derivatives,
trust and e-banking;
Part I - Page 51
X136.2 - X136.5
07.12.31
(8) Refusal to permit examination into

the affairs of the institution or any willful
making of a false or misleading statement
to the Monetary Board or to the appropriate
department of the SES; and
(9) Failure to comply with the capital
build-up program approved by the
Monetary Board.
On the other hand, banks which have
committed any of the major violations
under Item h above may only be allowed
to declare dividends by the Monetary Board
upon recommendation of the appropriate
department of the SES that the bank has
corrected the major violation/s that it has
committed.
(As amended by Circular No. 571 dated 21 June 2007)
X136.3 Net amount available for

dividends. The net amount available for
dividends shall be the amount of
unrestricted or free earned surplus and
undivided profits less:
a. Bad debts against which valuation
reserves are not required by the BSP to be
set up;
b. Unbooked valuation reserves, and
other unbooked capital adjustments
required by the BSP, whether or not allowed
to be set up on a staggered basis;
c. Deferred income tax;
d. Accumulated profits not yet
received but already recorded by a bank
representing its share in profits of its
subsidiaries under the equity method of
accounting;
e. Accrued interest as required to be
excluded pursuant to Item d of Subsec.
X305.4, net of booked valuation reserves
on accrued interest receivable or allowance
for uncollectible interest on loans; and
f. Foreign exchange profit arising from
revaluation of foreign exchange
denominated accounts.
For purposes of this Subsec., any
balance of Paid-in Surplus account may be
Part I - Page 52
included in the amount available for stock

dividends.
X136.4 Reporting and verification
Declaration of dividends shall be reported
by the bank concerned to the appropriate
department of the SES in the prescribed
form within the deadline indicated in
Appendix 6.
Pending verification of abovementioned report by the appropriate
department of the SES, the bank concerned
shall not make any announcement or
communication on the declaration of
dividends nor shall any payment be made
thereon.
Banks, however, whose shares are
listed with any domestic stock exchange
may declare dividends and give immediate
notice of such declaration to the SEC and
the stock exchanges, in compliance with
pertinent rules of SEC: Provided, That no
record date is fixed for such dividend pending
verification of the report on such declaration
by the appropriate department of the SES.
In any case, the declaration may be
announced and the dividends paid, if after
thirty (30) banking days from the date the
report required herein shall have been
received by the BSP, no advice against
such declaration has been received by the
bank concerned.
X136.5 Recording of dividends. The
liability for dividends declared shall be
taken up in the books upon receipt of
BSP approval thereof, or if no such
approval is received, after thirty (30)
banking/business days from the date the
required report on dividend declaration
w a s received by the appropriate
department of the SES , whichever comes
earlier. A memorandum entry may be
made to record the dividend declaration on
the date of approval by the board of directors
and for full disclosure purposes, the
X136.5 - 3137
05.12.31
dividends declared may be disclosed in the

financial statements by means of a footnote
which should include a statement to the
effect that the dividend declaration is
subject to review by the BSP.
Dividends of all kinds, whether on
common or on preferred shares of stock,
should not be treated as interest expense,
considering that as a general policy, only
irredeemable stock may be issued by banks.
X136.6 Issuance of fractional shares
Whenever the declaration of stock dividend
results in the issuance of fractional shares,
banks may observe the following
guidelines:
a. The amount corresponding to the
fraction should be given in the form of cash
dividend; and
b. The certificate of stock issued
should be in whole numbers, and the
fractional shares shall be issued in the form
of scrip certificates. In no case shall the
certificate of stock be issued including such
fractional share. The scrip certificate is
temporary in nature and should be
redeemed in cash when the bank is in a
position to do so, or stockholders holding
such scrip certificates may negotiate with
other stockholders for the purchase or sale
of such shares to convert them into full
shares, subject to the limitations on
stockholdings as provided by law.
Sec. X137 (Reserved)
Sec. 1137 (Reserved)
Sec. 3137 Limitations/Amount Available
on Dividends Declared by Rural Banks and
Cooperative Banks. The following rules
shall also govern the declaration of
dividends by RBs and Coop Banks.
a. RBs. In addition to the requirements
prescribed in Sec. X136, an RB may declare
cash dividends only if the amount of its

reserve for retirement of government
preferred stock is at least equal to the
amount which should have been
accumulated had the bank transferred
annually to the reserve account from its
undivided profits an amount equal to at
least an average of one-tenth (1/10) of the
total amount of preferred stock.
In no case shall cash dividends be
declared whenever any of the following
circumstances is present:
(i) Arrearages in its obligations with
the BSP amount to P1.0 million or more
unless covered by an approved plan of
payment which is being fully complied with:
Provided, however, That cash dividends
shall not exceed ten percent (10%) per
annum; or
(ii) Past due loans comprise twenty-five
percent (25%) or more of the total loan
portfolio at any time during the last six (6)
months prior to the dividend declaration.
b. Coop Banks
(1) Interest on share capital (a) Interest on share capital shall be
declared only upon compliance with the
requirements prescribed under Item a
above.
(b) Government preferred shares shall
be entitled to interest as enumerated in
Subsec. 3137.1: Provided, That no
cumulative interest shall be allowed for any
kind or class of share issued by the Coop Bank.
Unless otherwise provided for in the bylaws of the Coop Bank, the share capital
shall earn interest at the rate computed as
follows:
Rate of Interest = X (Net Surplus less
Statutory Reserves)
(Total Average Share Month)
where:
(i) X shall be a percentage to be
determined by the board of directors
allocated for interest on share capital;
and
(ii) Statutory Reserves shall refer to Article
87 of R.A. No. 6938.
Part I - Page 53
3137 - 3137.1
05.12.31
No allocation of interest on share capital

shall be made without the approval of the
general assembly which may increase or
decrease any or both.
(2) Patronage refund (a) The amount allocated for patronage
refund shall not be less than thirty percent
(30%) of the net surplus after deducting the
statutory reserves based on the principle of
equity;
(b) The rate of patronage refund shall
not be more than twice the rate of interest
on share capital;
(c) The sum allocated for patronage
refunds shall be made available at the
same rate to all cooperative patrons of the
Coop Bank in proportion to their
individual patronage: Provided, That (i) In the case of a cooperative member
patron with paid-up share capital
contribution, its proportionate amount of
patronage refund shall be paid unless it
agrees to credit the amount to its account
as additional share capital contribution;
(ii) In the case of a cooperative member
patron with unpaid share capital
contribution, its proportionate amount of
patronage refund shall be credited to its
share capital contribution;
(iii) In the case of a non-member patron,
its proportionate amount of patronage
refund shall be set aside in a general fund
for such patrons and shall be allocated to
non-member patrons only upon request and
presentation of evidence of the amount of
its patronage. The amount so allocated shall
be credited to such patron toward payment
of the minimum capital contribution for
membership. When a sum equal to this
amount has accumulated at any time within
a period specified in the by-laws, such
patron shall be deemed and become a
member of the Coop Bank if it so agrees or
requests and complies with the provisions of
the by-laws for admission to membership; and
Part I - Page 54
(iv) If within any period of time specified

in the by-laws, any subscriber who has not
fully paid his subscribed share capital or
any non-member patron which has
accumulated the sum necessary for
membership but does not request nor agree
to become a member or fails to comply with
the provision of the by-laws for admission
to membership, the amount so accumulated
or credited to their account together with
any part of the general fund for nonmember patrons shall be credited to the
reserve fund or to the education and
training fund of the Coop Bank.
3137.1 Dividends on government
shares
a. Held prior to 09 June 1992.
Whenever dividends of not less than
fourteen percent (14%) are declared on
common stock, government preferred stock
shall be entitled to a cash dividend not to
exceed two percent (2%) of total
outstanding preferred stock. Should the
dividends declared on common stock be
less than fourteen percent (14%), the
dividend on preferred stock shall be
proportionately reduced.
b. Held on or after 09 June 1992.
Shares held by the LBP, DBP, or by any
government-owned or-controlled bank or
FI shall share in dividend distributions from
the date of issuance in the amount of four
percent (4%) on the first and second years;
six percent (6%) on the third and fourth
years; eight percent (8%) on the fifth and
sixth years; ten percent (10%) on the
seventh and eighth years; and twelve
percent (12%) on the ninth to the fifteenth
years, which shall be cumulative: Provided,
That the RB and the government-owned
or-controlled bank are not precluded from
entering into an agreement providing for
rates of dividends other than those
prescribed by law.
X138 - X141.1
05.12.31

G. DIRECTORS, OFFICERS AND
EMPLOYEES
Sec. X141 Definition and Qualifications
of Directors; Responsibilities and Duties
of Board of Directors. For purposes of this
Section, the following shall be the definition
and qualifications, responsibilities and duties
of directors and board of directors,
respectively.
X141.1 Definition/limits
a. Definition of directors. Directors
shall include:
(1) directors who are named as such
in the articles of incorporation;
(2) directors duly elected in
subsequent meetings of the stockholders;
and
(3) those elected to fill vacancies in the
board of directors.
b. Limits on the number of the members
of the board of directors. Pursuant to
Sections 15 and 17 of R.A. No. 8791, there
shall be at least five (5), and a maximum of
fifteen (15) members of the board of
directors of a bank at least two (2) of whom
shall be independent directors: Provided,
That in case of a bank/quasi-bank/trust
entity merger or consolidation, the number
of directors may be increased up to twentyone (21).
An independent director shall mean a
person who
(1) Is not or has not been an officer or
employee of the bank, its subsidiaries or
affiliates or related interests during the past
three (3) years counted from the date of
his election;
(2) Is not a director or officer of the
related companies of the institutions
majority stockholder;
(3) Is not a majority stockholder of the
institution, any of its related companies, or
of its majority shareholders;
(4) Is not a relative within the fourth

degree of consanguinity or affinity,
legitimate or common-law of any director,
officer or majority shareholder of the bank
or any of its related companies;
(5) Is not acting as a nominee or
representative of any director or substantial
shareholder of the bank, any of its related
companies or any of its substantial
shareholders; and,
(6) Is not retained as professional adviser,
consultant, agent or counsel of the institution,
any of its related companies or any of its
substantial shareholders, either in his personal
capacity or through his firm; is independent
of management and free from any business
or other relationship, has not engaged and
does not engage in any transaction with the
institution or with any of its related companies
or with any of its substantial shareholders,
whether by himself or with other persons or
through a firm of which he is a partner or a
company of which he is a director or
substantial shareholder, other than
transactions which are conducted at arms
length and could not materially interfere with
or influence the exercise of his judgment.
An independent director of a bank can
be elected as an independent director of its:
(a) parent or holding company; (b)
subsidiary or affiliate; (c) substantial
shareholder; or (d) other related companies,
or vice-versa: Provided, That he is not a
substantial shareholder of the bank or any
of the said concerned entities.
The foregoing terms and phrases used
in Items (1) to (6) of this Section shall have
the following meaning:
(a) Parent is a corporation which has
control over another corporation directly or
indirectly through one (1) or more
intermediaries.
(b) Subsidiary means a corporation
more than fifty percent (50%) of the voting
stock of which is owned or controlled
directly or indirectly through one (1) or
more intermediaries by a bank.
Part I - Page 55
X141.1
05.12.31
(c) Affiliate is a juridical person that

directly or indirectly, through one (1) or
more intermediaries, is controlled by, or is
under common control with the bank or its
affiliates.
(d) Related interests as defined under
Sections 12 and 13 of R.A. No. 8791 shall
mean individuals related to each other
within the fourth degree of consanguinity
or affinity, legitimate or common law, and
two (2) or more corporations owned or
controlled by a single individual or by the
same family group or the same group of
persons.
(e) Control exists when the parent owns
directly or indirectly through subsidiaries
more than one-half of the voting power of
an enterprise unless, in exceptional
circumstance, it can be clearly
demonstrated that such ownership does not
constitute control. Control may also exist
even when ownership is one-half or less of
the voting power of an enterprise when
there is:
i. power over more than one-half of
the voting rights by virtue of an agreement
with other stockholders; or
ii. power to govern the financial and
operating policies of the enterprise under a
statute or an agreement; or
iii. power to appoint or remove the
majority of the members of the board of
directors or equivalent governing body; or
iv. power to cast the majority votes at
meetings of the board of directors or
equivalent governing body; or
v. any other arrangement similar to
any of the above.
(f) Related company means another
company which is: (a) its parent or holding
company; (b) its subsidiary or affiliate; or
(c) a corporation where a bank or its
majority stockholder own such number of
shares that will allow/enable him to elect at
least one (1) member of the board of
directors or a partnership where such
majority stockholder is a partner.
Part I - Page 56
(g) Substantial or major shareholder

shall mean a person, whether natural or
juridical, owning such number of shares
that will allow him to elect at least one (1)
member of the board of directors of a bank
or who is directly or indirectly the registered
or beneficial owner of more than ten
percent (10%) of any class of its equity
security.
(h) Majority stockholder or majority
shareholder means a person, whether
natural or juridical, owning more than fifty
percent (50%) of the voting stock of a bank.
Non-Filipino citizens may become
members of the board of directors of a bank
to the extent of the foreign participation in
the equity of said bank: Provided, That
pursuant to Section 23 of the Corporation
Code of the Philippines (BP Blg. 68), a
majority of the directors must be residents
of the Philippines.
The meetings of the board of directors
may be conducted through modern
technologies such as, but not limited to,
teleconferencing and videoconferencing as
long as the director who is taking part in
said meetings can actively participate in the
deliberations on matters taken up therein:
Provided, That every member of the board
shall participate in at least fifty percent
(50%) and shall physically attend at least
twenty-five percent (25%) of all board
meetings every year: Provided, further, That
in the case of a director who is unable to
physically attend or participate in board
meetings via teleconferencing or
videoconferencing, the corporate secretary
shall execute a notarized certification
attesting that said director was given the
agenda materials prior to the meeting and
that his/her comments/decisions thereon
were submitted for deliberation/discussion
and were taken up in the actual board
meeting, and that the submission of said
certification shall be considered compliance
with the required fifty percent (50%)
minimum attendance in board meetings.
X141.2 - X141.3
05.12.31
X141.2 Qualifications of a director

A director shall have the following
minimum qualifications:
a. He shall be at least twenty-five (25)
years of age at the time of his election or
appointment;
b. He shall be at least a college
graduate or have at least five (5) years
experience in business;
c. He must have attended a special
seminar on corporate governance for board
of directors conducted or accredited by the
BSP: Provided, That incumbent directors as
well as those elected after 17 September 2001
must attend said seminar on or before
30 June 2003 or within a period of six (6)
months from date of election for those
elected after 30 June 2003, as the case may
be; and
d. He must be fit and proper for the
position of a director of the bank. In
determining whether a person is fit and
proper for the position of a director, the
following matters must be considered:
integrity/probity, competence, education,
diligence and experience/training.
The foregoing qualifications for
directors shall be in addition to those
required or prescribed under R.A. No. 8791
and other existing applicable laws and
regulations.
X141.3 Powers/responsibilities and
duties of directors
a. Powers of the board of directors.
The corporate powers of a bank shall be
exercised, its business conducted and all its
property shall be controlled and held by its
board of directors. The powers of the board
of directors as conferred by law are original
and cannot be revoked by the stockholders.
The directors hold their office charged with
the duty to act for the bank in accordance
with their best judgment.
b. General responsibility of the board
of directors. The position of a bank director
is a position of trust. A director assumes
certain responsibilities to different

constituencies or stakeholders, i.e., the
bank itself, its stockholders, its depositors
and other creditors, its management and
employees, and the public at large. These
constituencies or stakeholders have the
right to expect that the institution is being
run in a prudent and sound manner.
The board of directors is primarily
responsible for the corporate governance
of the bank. To ensure good governance
of the bank, the board of directors should
establish strategic objectives, policies and
procedures that will guide and direct the
activities of the bank and the means to attain
the same as well as the mechanism for
monitoring managements performance.
While the management of the day-to-day
affairs of the institution is the responsibility
of the management team, the board of
directors is, however, responsible for
monitoring and overseeing management
action.
c. Specific duties and responsibilities
of the board of directors
(1) To select and appoint officers who
are qualified to administer the banks affairs
effectively and soundly and to establish
adequate selection process for all
personnel. It is the primary responsibility
of the board of directors to appoint
competent management team at all times.
The board of directors should apply fit and
proper standards on key personnel.
Integrity, technical expertise and
experience in the institutions business,
either current or planned, should be the key
considerations in the selection process.
And because mutual trust and a close
working relationship are important, the
boards choice should share its general
operating philosophy and vision for the
institution. The board of directors shall
establish an appropriate compensation
package for all personnel which shall be
consistent with the interest of all
stakeholders.
Part I - Page 57
X141.3
05.12.31
(2) To establish objectives and draw up

a business strategy for achieving them.
Consistent with the institutions objectives,
business plans should be established to
direct its on-going activities. The board
should ensure that performance against plan
is regularly reviewed, with corrective action
taken as needed.
(3) To conduct the affairs of the
institution with high degree of integrity.
Since reputation is a very valuable asset, it
is in the institutions best interest that in
dealings with the public, it observes a high
standard of integrity. The board of directors
should prescribe corporate values, codes of
conduct and other standards of appropriate
behaviour for itself, the senior management
and other employees. Among others,
activities and transactions that could result
or potentially result in conflict of interest,
personal gain at the expense of the
institution, or unethical conduct shall be
strictly prohibited. It should provide policies
that will prevent the use of the facilities of
the bank in furtherance of criminal and
other illegal activities.
(4) To establish and ensure
compliance with sound written policies.
The board should adopt written policies on
all major business activities, i.e.,
investments, loans, asset and liability
management, business planning and
budgeting. A mechanism to ensure
compliance with said policies shall also be
provided.
(5) To prescribe a clear assignment of
responsibilities and decision-making
authorities, incorporating a hierarchy of
required approvals from individuals to the
board of directors. The board should
establish in writing the limits of the
discretionary powers of each officer,
committee, sub-committee and such other
group for the purpose of lending, investing
or committing the bank to any financial
undertaking or exposure to risk at any time.
Part I - Page 58
The board should have a schedule of

matters and authorities reserved to it for
decision, such as: major capital
expenditures, equity investments and
divestments.
(6) To effectively supervise the banks
affairs. The board of directors should
establish a system of checks and balances
which applies in the first instance to the
board itself. Among the members of the
board, an effective system of checks and
balances must exist. The system should
also provide a mechanism for effective
check and control by the board over the
chief executive officer and key managers
and by the latter over the line officers of
the bank.
(7) To monitor, assess and control the
performance of management. The board
shall put in place an appropriate reporting
system so that it is provided with relevant
and timely information to be able to
effectively assess the performance of
management. For this purpose, it may
constitute a governance committee.
(8) To adopt and maintain adequate
risk management policy. The board of
directors shall be responsible for the
formulation and maintenance of written
policies and procedures relating to the
management of risks throughout the
institution. The risk management policy
shall include:
(a) a comprehensive risk management
approach;
(b) a detailed structure of limits,
guidelines and other parameters used to
govern risk-taking;
(c) a clear delineation of lines of
responsibilities for managing risk;
(d) an adequate system for measuring
risk; and
(e) effective internal controls and a
comprehensive risk-reporting process.
The board may constitute a committee
for this purpose.
X141.3
05.12.31
(9) To constitute the following

committees :1
(a) Audit committee. The audit
committee shall be composed of members
of the board of directors, at least two (2) of
whom shall be independent directors,
including the chairman, preferably with
accounting, auditing, or related financial
management expertise or experience. The
audit committee provides oversight of the
institutions financial reporting and control
and internal and external audit functions.
It shall be responsible for the setting up of
the internal audit department and for the
appointment of the internal auditor as well
as the independent external auditor who
shall both report directly to the audit
committee. It shall monitor and evaluate
the adequacy and effectiveness of the
internal control system.
Upon setting up the audit committee,
the board of directors shall draw up a
written charter or terms of reference which
clearly sets out the audit committees
authority and duties, as well as the reporting
relationship with the board of directors. This
charter shall be approved by the board of
directors and reviewed and updated
periodically.
The audit committee shall have explicit
authority to investigate any matter within
its terms of reference, full access to and
cooperation by management and full
discretion to invite any director or executive
officer to attend its meetings, and adequate
resources to enable it to effectively
discharge its functions.
The audit committee shall ensure that
a review of the effectiveness of the institutions
internal controls, including financial,
operational and compliance controls, and risk
management, is conducted at least annually.
The audit committee shall establish and
maintain mechanisms by which officers and
staff may, in confidence, raise concerns about
possible improprieties or malpractices in
matters of financial reporting, internal
control, auditing or other issues to persons

or entities that have the power to take
corrective action. It shall ensure that
arrangements are in place for the independent
investigation, appropriate follow-up action,
and subsequent resolution of complaints.
(b) Corporate governance committee.
The corporate governance committee shall
assist the board of directors in fulfilling its
corporate governance responsibilities. It
shall review and evaluate the qualifications
of all persons nominated to the board as
well as those nominated to other positions
requiring appointment by the board of
directors. The committee shall be composed
of at least three (3) members of the board
of directors, two (2) of whom shall be
independent directors.
The corporate governance committee
shall have a written charter that describes
the duties and responsibilities of its
members. This charter shall be approved
by the board of directors and reviewed and
updated at least annually.
The committee shall be responsible for
ensuring the boards effectiveness and due
observance of corporate governance
principles and guidelines. It shall oversee
the periodic performance evaluation of the
board and its committees and executive
management; and shall also conduct an
annual self-evaluation of its performance.
The committee shall also decide whether
or not a director is able to and has been
adequately carrying out his/her duties as
director bearing in mind the directors
contribution and performance (e.g.,
competence, candor, attendance,
preparedness and participation). Internal
guidelines shall be adopted that address the
competing time commitments that are faced
when directors serve on multiple boards.
The
committee
shall
make
recommendations to the board regarding
the continuing education of directors,
assignment to board committees,
succession plan for the board members and
1 Mandatory for all banks effective 01 January 2005 under Circular 456 dated 04 October 2004
Part I - Page 59
X141.3
05.12.31
senior officers, and their remuneration

commensurate with corporate and
individual performance.
The corporate governance committee
shall decide the manner by which the
boards performance may be evaluated and
propose an objective performance criteria
approved by the board. Such performance
indicators shall address how the board has
enhanced long term shareholders value.
(c) Risk management committee. The
risk management committee shall be
responsible for the development and
oversight of the institutions risk
management program. The committee shall
be composed of at least three (3) members
of the board of directors who shall possess
a range of expertise as well as adequate
knowledge of the institutions risk exposures
to be able to develop appropriate strategies
for preventing losses and minimizing the
impact of losses when they occur. It shall
oversee the system of limits to discretionary
authority that the board delegates to
management, ensure that the system
remains effective, that the limits are
observed and that immediate corrective
actions are taken whenever limits are
breached.
The risk management committee shall
have a written charter that defines the duties
and responsibilities of its members. The
charter shall be approved by the board of
directors and reviewed and refined
periodically.
The core responsibility of the risk
management committee are:
(i) Identify and evaluate exposures.
The committee shall assess the probability of
each risk becoming reality and shall estimate
its possible effect and cost. Priority areas of
concern are those risks that are the most likely
to occur and are costly when they happen.
(ii) Develop risk management
strategies. The risk management committee
shall develop a written plan defining the
strategies for managing and controlling the
Part I - Page 60
major risks. It shall identify practical strategies

to reduce the chance of harm and failure or
minimize losses if the risk becomes real.
(iii) Implement the risk management
plan. The risk management committee shall
communicate the risk management plan
and loss control procedures to affected
parties. The committee shall conduct
regular discussions on the institutions
current risk exposure based on regular
management reports and direct concerned
units or offices on how to reduce these risks.
(iv) Review and revise the plan as
needed. The committee shall evaluate the
risk management plan to ensure its
continued relevancy, comprehensiveness,
and effectiveness. It shall revisit strategies,
look for emerging or changing exposures,
and stay abreast of developments that affect
the likelihood of harm or loss. The
committee shall report regularly to the board
of directors the entitys over-all risk
exposure, actions taken to reduce the risks,
and recommend further action or plans as
necessary.
(d) (Deleted by Cir. 456 dated
04 October 2004)
(10) To meet regularly. To properly
discharge its function, the board of directors
shall meet regularly. Independent views in
board meetings shall be given full
consideration and all such meetings shall
be duly minuted.
(11) To keep the individual members of
the board and the shareholders informed.
It is the duty of the board to present to all
its members and to the shareholders a
balanced and understandable assessment
of the banks performance and financial
condition. It should also provide
appropriate information that flows
internally and to the public. All members
of the board shall have reasonable access
to any information about the institution.
(12) To ensure that the bank has
beneficial influence on the economy. The
board has a continuing responsibility to
X141.3
05.12.31
provide those services and facilities which

will be supportive of the national economy.
(13) To assess at least annually its
performance and effectiveness as a body,
as well as its various committees, the chief
executive officer and the bank itself. The
composition of the board shall also be
reviewed regularly with the end in view of
having a balanced membership. Towards
this end, a system and procedure for
evaluation shall be adopted which may
include, but not limited to, the setting of
benchmark and peer group analysis.
(14) To keep their authority within the
powers of the institution as prescribed in
the articles of incorporation, charter, bylaws and in existing laws, rules and
regulations. To conduct and maintain the
affairs of the institution within the scope of
its authority as prescribed in its charter and
in existing laws, rules and regulations, the
board shall appoint a compliance officer
who shall be responsible for coordinating,
monitoring and facilitating compliance with
existing laws, rules and regulations. The
compliance officer shall be vested with
appropriate authority and provided with
appropriate support and resources. It may
also constitute a compliance committee.
d. Specific duties and responsibilities
of a director
(1) To conduct fair business
transactions with the bank and to ensure
that personal interest does not bias board
decisions. Directors should, whenever
possible, avoid situations that would give
rise to a conflict of interest. If transactions
with the institution cannot be avoided, it
should be done in the regular course of
business and upon terms not less favorable
to the institution than those offered to
others. The basic principle to be observed
is that a director should not use his position
to make profit or to acquire benefit or
advantage for himself and/or his related
interests. He should avoid situations that
would compromise his impartiality.
(2) To act honestly and in good faith,

with loyalty and in the best interest of the
institution, its stockholders, regardless of
the amount of their stockholdings, and
other stakeholders such as its depositors,
investors, borrowers, other clients and the
general public. A director must always act
in good faith, with the care which an
ordinarily prudent man would exercise
under similar circumstances. While a
director should always strive to promote
the interest of all stockholders, he should
also give due regard to the rights and
interests of other stakeholders.
(3) To devote time and attention
necessary to properly discharge their
duties and responsibilities. Directors
should devote sufficient time to familiarize
themselves with the institutions
business. They must be constantly aware
of the institutions condition and be
knowledgeable enough to contribute
meaningfully to the boards work. They
must attend and actively participate in
board and committee meetings, request
and review meeting materials, ask
questions, and request explanations. If a
person cannot give sufficient time and
attention to the affairs of the institution, he
should neither accept his nomination nor
run for election as member of the board.
(4) To act judiciously. Before
deciding on any matter brought before the
board of directors, every director should
thoroughly evaluate the issues, ask
questions and seek clarifications when
necessary.
(5) To exercise independent
judgment. A director should view each
problem/situation objectively. When a
disagreement with others occurs, he should
carefully evaluate the situation and state
his position. He should not be afraid to
take a position even though it might be
unpopular. Corollarily, he should support
plans and ideas that he thinks will be
beneficial to the institution.
Part I - Page 61
X141.3 - X141.10
05.12.31
(6) To have a working knowledge of

the statutory and regulatory requirements
affecting the institution, including the
content of its articles of incorporation and
by-laws, the requirements of the BSP and
where applicable, the requirements of
other regulatory agencies. A director
should also keep himself informed of the
industry developments and business trends
in order to safeguard the institutions
competitiveness.
(7) To observe confidentiality.
Directors must observe the confidentiality
of non-public information acquired by
reason of their position as directors. They
may not disclose said information to any
other person without the authority of the
board.
X141.4 Confirmation of the election/
appointments of directors and officers. The
election/appointment of directors and
officers of banks shall be subject to
confirmation by the:
Confirming Authority
a. Monetary Board
b. A Committee to
be composed of:
The Deputy
Governor - SES
Managing
Directors of SE I
and II
Directors of the
concerned
SED of SES
Part I - Page 62
Position Level
Directors, Senior Vice
President and above
of UBs and KBs, as
well as the Directors,
President,
Chief
Executive Officer,
Chief
Operating
Officer, Senior Vice
President or quivalent
rank of TBs, IBs, RBs
and Coop Banks
with total assets of at
least P1.0 billion.
Directors, Senior
Vice President and
above or equivalent
rank of TBs, IBs, RBs
and Coop Banks
whose
election
appointment is not
subject to confirmation
by the Monetary
Board.
The election/appointment of all

incumbent directors and officers of all types
of banks as of 17 September 2001 not
previously approved/confirmed by the
Monetary Board shall be submitted to the
BSP through the appropriate SEDs for
confirmation.
X141.5 Place of board of directors'
meeting. Banks shall include in their bylaws a provision that meetings of their board
of directors shall be held only within the
Philippines.
X141.6 - X141.8 (Reserved)
X141.9 Reports required. Banks
shall furnish all of their directors with a copy
of the specific duties and responsibilities of
the board of directors prescribed under
Items b and c of Subsec. X141.3 within
thirty (30) banking days from 17 May 2001
in cases of incumbent directors and at the
time of election in cases of directors elected
after such date.
The directors concerned shall each be
required to acknowledge receipt of the
copies of such specific duties and
responsibilities and shall certify that they
fully understand the same.
Copies of the acknowledgment and
certification herein required shall be
submitted in accordance with Appendix 6.
X141.10 Sanctions. Without prejudice
to the other sanctions prescribed under
Section 37 of R.A. No. 7653 and to the
provisions of Section 16 of R.A. No. 8791,
any director of a bank who violates or fails to
observe and/or perform any of the above
responsibilities and duties shall for each
violation or offense, be penalized as follows:
For directors of
UBs/KBs
TBs/IBs
RBs/Coop Banks (national)
Coop Banks (local)
Amount
P 30,000
15,000
5,000
1,000
X142 - X143.1
07.12.31
Sec. X142 Definition and Qualifications

of Officers. For purposes of this Section,
the following shall be the definition and
qualification of officers.
X142.1 Definition of officers
Officers shall include the president,
executive vice president, senior vicepresident, vice president, general manager,
treasurer, secretary, trust officer and others
mentioned as officers of the bank, or those
whose duties as such are defined in the bylaws, or are generally known to be the
officers of the bank (or any of its branches
and offices other than the head office) either
through announcement, representation,
publication or any kind of communication
made by the bank: Provided, That a person
holding the position of chairman or vicechairman of the board or another position
in the board shall not be considered as an
officer unless the duties of his position in
the board include functions of management
such as those ordinarily performed by
regular officers: Provided, further, That
members of a group or committee,
including sub-groups or sub-committees,
whose duties include functions of
management such as those ordinarily
performed by regular officers, and are not
purely recommendatory or advisory, shall
likewise be considered as officers.
(As amended by Circular No. 562 dated 13 March 2007)
X142.2 Qualifications of an officer

An officer shall have the following
minimum qualifications:
a. He shall be at least twenty-one (21)
years of age; and
b. He shall be at least a college
graduate, or have at least five (5) years
experience in banking or trust operations
or related activities or in a field related to
his position and responsibilities, or have
undergone training in banking or trust
operations acceptable to the appropriate
department of the SES: Provided, however,
That trust officers shall have at least two (2)

years of actual experience or training in trust
operations or fund management or other
related fields; and
c. He must be fit and proper for the
position he is being proposed/appointed to.
In determining whether a person is fit and
proper for a particular position, the
integrity/probity, competence, education,
diligence and experience/training.
officers shall be in addition to those
required or prescribed under R.A. No.
8791 and other existing applicable laws
and regulations.
X142.3 Appointment of officers
The appointment of officers of UBs/
KBs/TBs with the rank of senior vice
president (SVP) and above, whether
incumbent or proposed, shall not be subject
to Monetary Board approval but rather to
Monetary Board confirmation. Appointment
of officers below the rank of SVP shall be
subject neither to Monetary Board approval
nor Monetary Board confirmation.
The appointment of abovementioned
officers shall be deemed to have been
confirmed by the BSP, if after sixty (60)
banking days from receipt of the required
reports, no advice against said
appointment has been received by the
bank concerned.
b. (As amended by Cir. 434 dated
04 October 2004)
Sec. X143 Disqualification of Directors
and Officers. The following regulations
shall govern the disqualification of bank
directors and officers.
X143.1 Persons disqualified to
become directors. Without prejudice to
specific provisions of law prescribing
disqualifications for directors, the following
are disqualified from becoming directors:
Part I - Page 63
X143.1
07.12.31
a. Permanently disqualified
Directors/officers/employees
permanently disqualified by the Monetary
Board from holding a director position:
(1) Persons who have been convicted
by final judgment of a court for offenses
involving dishonesty or breach of trust such
as, but not limited to, estafa, embezzlement,
extortion, forgery, malversation, swindling,
theft, robbery, falsification, bribery,
violation of B.P. Blg. 22, violation of AntiGraft and Corrupt Practices Act and
prohibited acts and transactions under
Section 7 of R.A. No. 6713 (Code of
Conduct and Ethical Standards for Public
Officials and Employees);
by final judgment of a court sentencing
them to serve a maximum term of
imprisonment of more than six (6) years;
by final judgment of the court for violation
of banking laws, rules and regulations;
(4) Persons who have been judicially
declared insolvent, spendthrift or
incapacitated to contract;
(5) Directors, officers or employees of
closed banks who were found to be
culpable for such institutions closure as
determined by the Monetary Board;
(6) Directors and officers of banks
found by the Monetary Board as
administratively liable for violation of
banking laws, rules and regulations where
a penalty of removal from office is imposed,
and which finding of the Monetary Board
has become final and executory; or
(7) Directors and officers of banks or
any person found by the Monetary Board
to be unfit for the position of directors or
officers because they were found
administratively liable by another
government agency for violation of banking
laws, rules and regulations or any offense/
violation involving dishonesty or breach of
trust, and which finding of said government
agency has become final and executory.
Part I - Page 64
b. Temporarily disqualified
disqualified by the Monetary Board from
holding a director position for a specific/
indefinite period of time. Included are:
(1) Persons who refuse to fully
disclose the extent of their business interest
or any material information to the
appropriate department of the SES when
required pursuant to a provision of law or of
a circular, memorandum, rule or regulation
of the BSP. This disqualification shall be in
effect as long as the refusal persists;
(2) Directors who have been absent or
who have not participated for whatever
reasons in more than fifty percent (50%)
of all meetings, both regular and special,
of the board of directors during their
incumbency, and directors who failed to
physically attend for whatever reasons in
at least twenty-five percent (25%) of all
board meetings in any year, except that
when a notarized certification executed by
the corporate secretary has been submitted
attesting that said directors were given the
agenda materials prior to the meeting and
that their comments/decisions thereon
were submitted for deliberation/discussion
and were taken up in the actual board
meeting, said directors shall be considered
present in the board meeting. This
disqualification applies only for purposes
of the immediately succeeding election;
(3) Persons who are delinquent in the
payment of their obligations as defined
hereunder:
(a) Delinquency in the payment of
obligations means that an obligation of a
person with a bank where he/she is a
director or officer, or at least two (2)
obligations with other banks/FIs, under
different credit lines or loan contracts, are
past due pursuant to Sec. X306;
(b) Obligations shall include all
borrowings from a bank obtained by:
(i) A director or officer for his own
account or as the representative or agent
X143.1
07.12.31
of others or where he/she acts as a

guarantor, endorser or surety for loans
from such FIs;
(ii) The spouse or child under the
parental authority of the director or officer;
(iii)Any person whose borrowings or
loan proceeds were credited to the
account of, or used for the benefit of a
director or officer;
(iv) A partnership of which a director
or officer, or his/her spouse is the
managing partner or a general partner
owning a controlling interest in the
partnership; and
(v) A corporation, association or firm
wholly-owned or majority of the capital
of which is owned by any or a group of
persons mentioned in the foregoing Items
(i), (ii) and (iv);
This disqualification shall be in effect
as long as the delinquency persists.
by a court for offenses involving
dishonesty or breach of trust such as, but
not limited to, estafa, embezzlement,
extortion, forgery, malversation, swindling,
theft, robbery, falsification, bribery,
violation of B.P. Blg. 22, violation of AntiGraft and Corrupt Practices Act and
prohibited acts and transactions under
Section 7 of R.A. No. 6713, violation of
banking laws, rules and regulations or
those sentenced to serve a maximum term
of imprisonment of more than six (6) years
but whose conviction has not yet become
final and executory;
(5) Directors and officers of closed
banks pending their clearance by the
Monetary Board;
(6) Directors disqualified for failure to
observe/discharge their duties and
responsibilities prescribed under existing
regulations. This disqualification applies
until the lapse of the specific period of
disqualification or upon approval by the
Monetary Board on recommendation by
the appropriate department of the SES of

such directors election/reelection;
(7) Directors who failed to attend the
special seminar for board of directors
required under Item c of Subsec. X141.2.
This disqualification applies until the director
concerned had attended such seminar;
(8) Persons dismissed/terminated from
employment for cause. This disqualification
shall be in effect until they have cleared
themselves of involvement in the alleged
irregularity or upon clearance, on their
request, from the Monetary Board after
showing good and justifiable reasons, or
after the lapse of five (5) years from the time
they were officially advised by the
appropriate department of the SES of their
disqualification;
(9) Those under preventive suspension;
(10) Persons with derogatory records as
certified by, or on the official files of, the
judiciary, NBI, Philippine National Police
(PNP), quasi-judicial bodies, other
government agencies, international police,
monetary authorities and similar agencies
or authorities of foreign countries for
irregularities or violations of any law, rules
and regulations that would adversely
affect the integrity of the director/officer
or the ability to effectively discharge his
duties. This disqualification applies until
they have cleared themselves of the alleged
irregularities/violations or after a lapse of
five (5) years from the time the complaint,
which was the basis of the derogatory
record, was initiated;
(11) Directors and officers of banks
a penalty of removal from office is
imposed, and which finding of the
Monetary Board is pending appeal before
the appellate court, unless execution or
enforcement thereof is restrained by the
court;
Part I - Page 65
X143.1 - X143.3
07.12.31
(12)Directors and officers of banks or

any person found by the Monetary Board
to be unfit for the position of director or
officer because they were found
administratively liable by another
government agency for violation of banking
laws, rules and regulations or any offense/
violation involving dishonesty or breach of
trust, and which finding of said government
agency is pending appeal before the
appellate court, unless execution or
enforcement thereof is restrained by the
court; and
(13)Directors and officers of banks
a penalty of suspension from office or fine
is imposed, regardless whether the finding
of the Monetary Board is final and executory
or pending appeal before the appellate
court, unless execution or enforcement
thereof is restrained by the court. The
disqualification shall be in effect during the
period of suspension or so long as the fine
is not fully paid.
(As amended by Circular Nos.584 dated 28 September 2007
and 513 dated 10 February 2006)
X143.2 Persons disqualified to

become officers
a. The disqualifications for directors
mentioned in Subsec. X143.1 shall likewise
apply to officers, except those stated in Items
b(2) and b(7).
b. Except as may be authorized by the
Monetary Board or the Governor, the
spouse or a relative within the second
degree of consanguinity or affinity of any
person holding the position of chairman,
president, executive vice president or any
position of equivalent rank, general
manager, treasurer, chief cashier or chief
accountant is disqualified from holding or
being elected or appointed to any of said
positions in the same bank; and the spouse
or relative within the second degree of
Part I - Page 66
consanguinity or affinity of any person

holding the position of manager, cashier,
or accountant of a branch or office of a bank
is disqualified from holding or being
appointed to any of said positions in the
same branch or office.
c. In the case of UBs, KBs, and TBs,
any appointive or elective official, whether
full time or part time, except in cases where
such service is incident to financial
assistance provided by the government or
government-owned or -controlled
corporations (GOCCs) or in cases allowed
under existing law.
d. In the case of Coop Banks, any
officer or employee of CDA or any elective
public official, except a barangay official.
e. Except as may otherwise be
allowed under Commonwealth Act No.
108, otherwise known as The AntiDummy Law, as amended, foreigners
cannot be officers or employees of banks.
X143.3 Effect of non-possession of
qualifications or possession of
disqualifications. A director/officer elected
or appointed who does not possess all the
qualifications mentioned under Subsecs.
X141.2 and X142.2 and/or has any of the
disqualifications mentioned under Subsecs.
X143.1 and X143.2 shall not be confirmed
by the confirming authority under Subsec.
X141.4 and shall be removed from office
even if he/she assumed the position to
which he/she was elected or appointed. A
confirmed director/officer or officer not
requiring confirmation possessing any of the
disqualifications, enumerated in the abovementioned subsections shall be subject to
the disqualification procedures provided
under Subsec. X143.4. A director/officer,
prior to assuming the position to which he/
she was elected/appointed, must submit to
the appropriate department of the SES a
verified statement that he/she has all the
aforesaid qualifications and none of the
disqualifications. The submission of
X143.3 - X143.4
07.12.31
verified statement will apply to directors/

officers elected/appointed after 14 March
2006.
(As amended by Circular No. 513 dated 10 February 2006)
X143.4 Disqualification procedures

a. The board of directors and
management of every institution shall be
responsible for determining the existence
of the ground for disqualification of the
institutions director/officer or employee
and for reporting the same to the BSP.
While the concerned institution may
conduct its own investigation and impose
appropriate sanction/s as are allowable, this
shall be without prejudice to the authority
of the Monetary Board to disqualify a
director/officer/employee from being
elected/appointed as director/officer in any
FI under the supervision of the BSP.
Grounds for disqualification made known
to the institution, shall be reported to the
appropriate department of the SES within
seventy-two (72) hours from knowledge
thereof.
b. On the basis of knowledge and
evidence on the existence of any of the
grounds for disqualification mentioned in
Subsecs. X143.1 and X143.2, the director
or officer concerned shall be notified in
writing either by personal service or through
registered mail with registry return receipt
card at his/her last known address by the
appropriate department of the SES of the
existence of the ground for his/her
disqualification and shall be allowed to
submit within fifteen (15) calendar days
from receipt of such notice an explanation
on why he/she should not be disqualified
and included in the watchlisted file,
together with the evidence in support of his/
her position. The head of said department
may allow an extension on meritorious
ground.
c. Upon receipt of the reply
explanation of the director/officer
concerned, the appropriate department of
the SES shall proceed to evaluate the case.

The director/officer concerned shall be
afforded the opportunity to defend/clear
himself/herself.
d. If no reply has been received from
the director/officer concerned upon the
expiration of the period prescribed under
Item b above, said failure to reply shall
be deemed a waiver and the appropriate
department of the SES shall proceed to
evaluate the case based on available
records/evidence.
e. If the ground for disqualification is
delinquency in the payment of obligation,
the concerned director or officer shall be
given a period of thirty (30) calendar days
within which to settle said obligation or,
restore it to its current status or, to explain
why he/she should not be disqualified and
included in the watchlisted file, before the
evaluation on his disqualification and
watchlisting is elevated to the Monetary
Board.
f. For directors/officers of closed
banks, the concerned department of the SES
shall make appropriate recommendation to
the Monetary Board clearing said directors/
officers when there is no pending case/
complaint or evidence against them. When
there is evidence that a director/officer has
committed irregularity, the appropriate
department of the SES shall make
recommendation to the Monetary Board that
his/her case be referred to the Office of
Special Investigation (OSI) for further
investigation and that he/she be included
in the masterlist of temporarily disqualified
persons until the final resolution of his/her
case. Directors/officers with pending cases/
complaints shall also be included in said
masterlist of temporarily disqualified persons
upon approval by the Monetary Board until
the final resolution of their cases. If the
director/officer is cleared from involvement
in any irregularity, the appropriate department
of the SES shall recommend to the Monetary
Board his/her delisting. On the other hand,
Part I - Page 67
X143.4 - X143.5
07.12.31
if the director/officer concerned is found to

be responsible for the closure of the
institution, the concerned department of the
SES shall recommend to the Monetary Board
his/her delisting from the masterlist of
temporarily disqualified persons and his/her
inclusion in the masterlist of permanently
disqualified persons.
g. If the disqualification is based on
dismissal from employment for cause, the
appropriate department of the SES shall, as
much as practicable, endeavor to establish
the specific acts or omissions constituting
the offense or the ultimate facts which
resulted in the dismissal to be able to
determine if the disqualification of the
director/officer concerned is warranted or
not. The evaluation of the case shall be
made for the purpose of determining if
disqualification would be appropriate and
not for the purpose of passing judgment on
the findings and decision of the entity
concerned. The appropriate department of
the SES may decide to recommend to the
Monetary Board a penalty lower than
disqualification (e.g., reprimand,
suspension, etc.) if, in its judgment the act
committed or omitted by the director/officer
concerned does not warrant disqualification.
h. All other cases of disqualification,
whether permanent or temporary shall be
elevated to the Monetary Board for
approval and shall be subject to the
procedures provided in Items a,b,c
and d above.
i. Upon approval by the Monetary
Board, the concerned director/officer shall
be informed by the appropriate department
of the SES in writing either by personal
service or through registered mail with
registry return receipt card, at his/her last
known address of his/her disqualification
from being elected/appointed as director/
officer in any FI under the supervision of
BSP and/or of his/her inclusion in the
masterlist of watchlisted persons so
disqualified.
Part I - Page 68
j. The board of directors of the

concerned institution shall be immediately
informed of cases of disqualification
approved by the Monetary Board and shall
be directed to act thereon not later than the
following board meeting. Within seventytwo (72) hours thereafter, the corporate
secretary shall report to the Governor of
the BSP through the appropriate department
of the SES the action taken by the board on
the director/officer involved.
k. Persons who are elected or
appointed as director or officer in any of
the BSP-supervised institutions for the first
time but are subject to any of the grounds
for disqualification provided for under
Subsecs. X143.1 and X143.2, shall be
afforded the procedural due process
prescribed above.
l. Whenever a director/officer is
cleared in the process mentioned under
Item c above or, when the ground for
disqualification ceases to exist, he/she
would be eligible to become director or
officer of any bank, QB, trust entity or any
institution under the supervision of the BSP
only upon prior approval by the Monetary
Board. It shall be the responsibility of the
appropriate department of the SES to elevate
to the Monetary Board the lifting of the
disqualification of the concerned director/
officer and his/her delisting from the
masterlist of watchlisted persons.
(As amended by Circular No. 584 dated 28 September 2007)
X143.5 Watchlisting. To provide the

BSP with a central information file to be
used as reference in passing upon and
reviewing the qualifications of persons
elected or appointed as director or officer
of a bank, QB or trust entity, the SES shall
maintain a watchlist of persons disqualified
to be a director or officer of such entities
under its supervision under the following
procedures:
a. Watchlist categories. Watchlisting
shall be categorized as follows:
X143.5 - X144
07.12.31
(1) Disqualification
File
A
(Permanent) Directors/officers/employees
Board from holding a director/officer position.
(2) Disqualification
File
B
(Temporary) Directors/officers/employees
temporarily disqualified by the Monetary
Board from holding a director/officer
position.
b. Inclusion of directors/officers/
employees in the watchlist. Directors/
officers/employees disqualified under
Subsec. X143.4 shall be included in the
watchlist disqualification files A or B.
c. Confidentiality. Watchlist files shall
be for internal use only of the BSP and may
not be accessed or queried upon by outside
parties including banks, QBs and trust
entities except with the authority of the
person concerned and with the approval of
the Deputy Governor, SES or the Governor
of the Monetary Board.
BSP will disclose information on its
watchlist files only upon submission of a
duly accomplished and notarized
authorization from the concerned person
and approval of such request by the Deputy
Governor, SES or the Governor or the
Monetary Board.
The prescribed
authorization form to be submitted to the
concerned department of SES is in Appendix
76.
Banks can gain access to information
in the said watchlist for the sole purpose of
screening their applicants for hiring and/or
confirming their elected directors and
appointed officers. Banks must obtain the
said authorization on an individual basis.
d. Delisting. All delistings shall be
approved by the Monetary Board upon
recommendation of the operating
departments of SES except in cases of
persons known to be dead where delisting
shall be automatic upon proof of death and
need not be elevated to the Monetary
Board. Delisting may be approved by the
Monetary Board in the following cases:
(1) Watchlist Disqualification File B

(Temporary)
(a) After the lapse of the specific period
of disqualification;
(b) When the conviction by the court
for crimes involving dishonesty, breach of
trust and/or violation of banking law
becomes final and executory, in which case
the director/officer/employee is relisted to
Watchlist Disqualification File A
(Permanent); and
(c) Upon favorable decision or
clearance by the appropriate body, i.e.,
court, NBI, BSP, bank, QB, trust entity or
such other agency/body where the
concerned individual had derogatory
record.
Directors/officers/employees delisted
from the Watchlist Disqualification File
B other than those upgraded to Watchlist
Disqualification File A shall be eligible
for re-employment with any bank, QB or
trust entity.
(As amended by CL-2007-001 dated 04 January 2007 and
CL-2006-046 dated 21 December 2006)
Sec. X144 Bio-data of Directors and

Officers
a. Banks shall submit to the
appropriate department of the SES a bio-data
of their directors and officers after their
election or appointment, in a prescribed
form and within the deadline indicated in
Appendix 6.
The bio-data shall be updated in any of
the following instances:
(1) Change in educational attainment,
experience or additional qualifications in
banking that will enhance the directors or
officers competence or will qualify him to
his present position;
(2) Promotion; and
(3) Transfer to other banks.
The bio-data shall be submitted only
once. For purposes of updating, only the
pertinent sections and pages shall be
submitted to the BSP.
Part I - Page 69
X144 - X145
07.12.31
b. Banks shall submit to the appropriate

department of the SES for evaluation, a list of
the incumbent members of the board of
directors and officers (chief executive
officers down the line) after the annual
election of the board of directors as
provided in the banks by-laws. Any change
in the composition of the board of directors
shall also be reported to the BSP after the
election or appointment of a member.
c. If after evaluation, the Monetary
Board shall find grounds for disqualification,
the director/officer so elected/appointed
may be removed from office even if he/she
has assumed the position to which he/she
was elected/appointed pursuant to Section
9-A of R.A. No. 337, as amended.
In the case of the independent directors,
the bio-data shall be accompanied by a
certification under oath from the director
concerned that he/she is an independent
director as defined under Subsec. X141.1
that all the information thereby supplied are
true and correct, and that he/she:
(1) Is not or has not been an officer or
employee of the bank, its subsidiaries or
affiliates or related interests during the past
three (3) years counted from the date of his
election;
(2) Is not a director or officer of the
related companies of the institutions
majority stockholder;
(3) Is not a majority stockholder of the
institution, any of its related companies, or
of its majority shareholders;
(4) Is not a relative within the fourth
degree of consanguinity or affinity,
legitimate or common-law of any director,
officer or majority shareholder of the bank
or any of its related companies;
(5) Is not acting as a nominee or
representative of any director or substantial
shareholder of the bank, any of its related
companies or any of its substantial
shareholders;
(6) Is not retained as professional
adviser, consultant, agent or counsel of the
Part I - Page 70
institution, any of its related companies or

any of its substantial shareholders, either
in his personal capacity or through his firm;
is independent of management and free
from any business or other relationship, has
not engaged and does not engage in any
transaction with the institution or with any
of its related companies or with any of its
substantial shareholders, whether by
himself or with other persons or through a
firm of which he is a partner or a company
of which he is a director or substantial
shareholder, other than transactions which
are conducted at arms length and could not
materially interfere with or influence the
exercise of his judgment; and
(7) Complies with all the qualifications
required of an independent director and
does not possess any of the disqualifications
therefor; and has not withheld nor
suppressed any information material to his
or her qualification or disqualification as
an independent director.
Sec. X145 Interlocking Directorships and/
or Officerships. In order to safeguard
against the excessive concentration of
economic power, unfair competitive
advantage or conflict of interest situations
to the detriment of others through the
exercise by the same person or group of
persons of undue influence over the policymaking and/or management functions of
similar FIs while at the same time allowing
banks, QBs and non-bank financial
institutions (NBFIs) without quasi-banking
functions to benefit from organizational
synergy or economies of scale and effective
sharing of managerial and technical
expertise, the following regulations shall
govern interlocking directorships and/or
officerships within the financial system
consisting of banks, QBs and NBFIs.
For purposes of this Section, QBs shall
refer to investment houses, finance
companies, trust entities and all other NBFIs
with quasi-banking functions while NBFIs
X145
07.12.31
shall refer to investment houses, finance

companies, trust entities, insurance
companies, securities dealers/brokers,
credit card companies, non-stock savings
and loan associations (NSSLAs), holding
companies, investment companies,
government NBFIs, asset management
companies, insurance agencies/brokers,
venture capital corporations, FX dealers,
money changers, lending investors,
pawnshops, fund managers, mutual
building and loan associations, remittance
agents and all other NBFIs without quasibanking functions.
a. Interlocking directorships
While concurrent directorship may be
the least prejudicial of the various
relationship cited in this Section to the
interests of the FIs involved, certain
measures are still necessary to safeguard
against the disadvantages that could result
from
indiscriminate
concurrent
directorship.
(1) Except as may be authorized by the
Monetary Board or as otherwise provided
hereunder, there shall be no concurrent
directorships between banks or between a
bank and a QB.
(2) Without the need for prior approval
of the Monetary Board, concurrent
directorships between entities not
involving an investment house shall be
allowed in the following cases:
(a) Banks not belonging to the same
category: Provided, That not more than one
(1) Bank shall have quasi-banking functions;
(b) A bank and an NBFI;
(c) A bank without quasi-banking
functions and a QB; and
(d) A bank and one (1) or more of its
subsidiary bank/s, QB/s and NBFI/s.
For purposes of the foregoing, a
husband and his wife shall be considered
as one (1) person.
b. Interlocking directorships and
officerships
In order to prevent any conflict of
interest resulting from the exercise of

directorship coupled with the reinforcing
influence of an officers decision-making
and implementing powers, the following
rules shall be observed:
(1) Except as may be authorized by
the Monetary Board or as otherwise
provided hereunder, there shall be no
concurrent directorship and officership
between banks or between a bank and a
QB or an NBFI; and
(2) Without the need for prior approval
of the Monetary Board, concurrent
directorship and officership between a bank
and one (1) or more of its subsidiary
bank/s, QB/s and NBFI/s, other than
investment house/s, shall be allowed.
c. Interlocking officerships
A concurrent officership in different FIs
may present more serious problems of selfdealing and conflict of interest. Multiple
positions may result in poor governance or
unfair competitive advantage. Considering
the full-time nature of officer positions, the
difficulties of serving two (2) offices at the
same time, and the need for effective and
efficient management, the following rules
shall be observed:
As a general rule, there shall be no
concurrent officerships, including
secondments, between banks or, between
a bank and a QB or an NBFI. For this
purpose, secondment shall refer to the
transfer/detachment of a person from his
regular organization for temporary
assignment elsewhere where the seconded
employee remains the employee of the
home employer although his salaries and
other remuneration may be borne by the
host organization.
However, subject to prior approval of
the Monetary Board, concurrent officerships,
including secondments, may be allowed in
the following cases:
(1) Between a bank and not more than
two (2) of its subsidiary bank/s, QB/s, and
NBFI/s, other than investment house/s; or
Part I - Page 70a
X145 - X146
07.12.31
(2) Between a bank and not more than

two (2) of its subsidiary QB/s and NBFI/s; or
(3) Between two (2) banks, or between
a bank and a QB or an NBFI, other than an
investment house: Provided, That at least
twenty percent (20%) of the equity of each
of the banks, QBs or NBFIs is owned by a
holding company or a bank/QB and the
interlocking arrangement is necessary for the
holding company or the bank/QB to provide
technical expertise or managerial assistance
to its subsidiaries/affiliates.
Aforementioned concurrent officerships
may be allowed, subject to the following
conditions:
(a) that the positions do not involve
any functional conflict of interests;
(b) that any officer holding the positions
of president, chief executive officer, chief
operating officer or chief financial officer
or their equivalent may not be concurrently
appointed to any of said positions or their
equivalent;
(c) that the officer involved, or his
spouse or any of his relatives within the first
degree of consanguinity or affinity or by
legal adoption, or a corporation, association
or firm wholly- or majority-owned or
controlled by such officer or his relatives
enumerated above, does not own in his/its
own capacity more than twenty percent
(20%) of the subscribed capital stock of the
entities in which the bank has equity
investments; and
(d) that where any of the positions
involved is held on full-time basis, adequate
justification shall be submitted to the
Monetary Board; or
(4) Concurrent officership positions in
the same capacity which do not involve
management functions, i.e., internal auditor,
corporate secretary, assistant corporate
secretary and security officer, between a
bank and one or more of its subsidiary
QB/s and NBFI/s, or between bank/s, QB/s
and NBFI/s, other than investment house/s:
Provided, That at least twenty percent
Part I - Page 70b
(20%) of the equity of each of the banks,

QBs and NBFIs is owned by a holding
company or by any of the banks/QBs within
the group.
For purposes of this Section, members
of a group or committee, including subgroups or sub-committees, whose duties
include functions of management such as
those ordinarily performed by regular officers,
shall likewise be considered as officers.
It shall be the responsibility of the
Corporate Governance Committee to
conduct an annual performance evaluation
of the board of directors and senior
management. When a director or officer has
multiple positions, the Committee should
determine whether or not said director or
officer is able to and has been adequately
carrying out his/her duties and, if necessary,
recommend changes to the board based
upon said performance/ review.
(As amended by Circular No. 592 dated 28 December 2007)
X145.1 Representatives of
government. The provisions of this
Subsection shall apply to persons appointed
to such positions as representatives of the
government or government-owned or
controlled entities unless otherwise
provided under existing laws.
Sec. X146 Profit Sharing Programs. Profit

sharing programs adopted in favor of
directors, officers and employees shall be
reflected in the by-laws of the bank, subject
to the following guidelines:
a. The base in any profit sharing
program shall be the net income for the year
of the bank as shown in its Consolidated
Statement of Income and Expenses for the
year, net of the following:
(1) All cumulative dividends accruing
to preferred stock to the extent not covered
by earned surplus;
(2) Accrued interest receivable credited
to income but not yet collected, net of
X146 - X147
05.12.31
reserves already set up for uncollected

interest on loans;
(3) Unbooked valuation reserves on
loans or the amount required to update
valuation reserves in accordance with the
schedule approved by the Monetary Board,
as well as all amortizations due on deferred
charges;
(4) Provisions for current years taxes;
(5) Income tax deferred for the year.
Provided, however, That in case of reversal
of deferred income taxes which were
deducted from net income in computing
for profit sharing of previous years, the
deferred income tax reversed to expense
shall be added back to net income to arrive
at the base for profit sharing for the year
during which the reversal is made;
(6) Accumulated profits not yet
received but already recorded by a bank
representing its share in profits of its
subsidiaries under the equity method of
accounting; and
b. The bank may provide in its bylaws for other priorities in the computation
of net profits for purposes of profit
sharing: Provided, That in no case shall
profit sharing take precedence over any
of the items in the preceding paragraph;
and
c. Prior approval of the Monetary
Board shall be necessary before a bank
which has received financial assistance from

the BSP may implement its profit sharing
program. Financial assistance shall refer to
emergency loans and advances and such
other forms of credit accommodations
which are intended to provide banks with
liquidity in times of need.
Sec. X147 Compensation and Other Benefits
of Directors and Officers. To protect the
funds of depositors and creditors, the
Monetary Board may regulate/restrict the
payment by the bank of compensation,
allowances, fees, bonuses, stock options,
profit sharing and fringe benefits to its
directors and officers in exceptional cases
and when the circumstances warrant, such
as, but not limited to, the following:
a. When the bank is under
controllership, conservatorship or when it
has outstanding emergency loans and
advances and such other forms of credit
accommodation from the BSP which are
intended to provide it with liquidity in times
of need;
b. When the institution is found by the
Monetary Board to be conducting business
in an unsafe or unsound manner;
c. When it is found by the Monetary
Board to be in an unsatisfactory financial
condition such as, but not limited to, the
following cases:
Part I - Page 70c
X147 - X149
05.12.31
(1) Its capital is impaired;

(2) It has suffered continuous losses
from operations for the past three (3) years;
(3) Its composite CAMEL(S) rating in
the latest examination is below 3; and
(4) It is under rehabilitation by the BSP/
PDIC which rehabilitation may include
debt-to-equity conversion, etc.
In the presence of any one (1) or more
of the circumstances mentioned above, the
Monetary Board may impose the following
restrictions in the compensation and other
benefits of directors and officers:
a. In the case of profit sharing, the
provision of Sec. X146 shall be observed
except that for purposes of this Section, the
total amount of unbooked valuation
reserves and deferred charges shall be
deducted from the net income.
b. Except for the financial assistance
to meet expenses for the medical,
maternity, education and other
emergency needs of the directors or
officers or their immediate family, the
other forms of financial assistance may
be suspended.
c. When the total compensation
package including salaries, allowances, fees
and bonuses of directors and officers are
significantly excessive as compared with
peer group averages, the Monetary Board
may order their reduction to reasonable
levels: Provided, That even if a bank is in
financial trouble, it may nevertheless be
allowed to grant relatively higher salary
packages in order to attract competent
officers and quality staff as part of its
rehabilitation program.
The foregoing provisions founded on
Section 18 of R.A. No. 8791 shall be
deemed part of the benefits and
compensation programs of banks.
Sec. 3147 Bonding/Training of Directors,

Officers and Employees. Officers and
employees handling funds or securities
amounting to P5,000 or more in any one
(1) year shall be bonded in an amount
Directors, officers and other personnel
of RBs/Coop Banks shall undergo such
training in banking as may be required
by the BSP.
Sec. X149 Conducting Business in an
Unsafe/Unsound Manner. Whether a
particular activity may be considered as
conducting business in an unsafe or
unsound manner, all relevant facts must be
considered. An analysis of the impact
thereof on the banks operations and
financial conditions must be undertaken,
including evaluation of capital position,
asset condition, management, earnings
posture and liquidity position.
In determining whether a particular act
or omission, which is not otherwise
prohibited by any law, rule or regulation
affecting banks, may be deemed as
unsound manner, the Monetary Board,
upon report of the head of the supervising
or examining department based on
findings in an examination or a complaint,
shall consider any of the following
circumstances:
a. The act or omission has resulted
or may result in material loss or damage,
or abnormal risk or danger to the safety,
stability, liquidity or solvency of the
institution;
b. The act or omission has resulted
or may result in material loss or damage
or abnormal risk to the institutions
depositors, creditors, investors,
stockholders, or to the BSP, or to the
public in general;
Part I - Page 71
X149 - X151
08.12.31
c. The act or omission has caused any

undue injury, or has given unwarranted
benefits, advantage or preference to the
bank or any party in the discharge by the
director or officer of his duties and
responsibilities through manifest partiality,
evident bad faith or gross inexcusable
negligence; or
d. The act or omission involves
entering into any contract or transaction
manifestly and grossly disadvantageous to
the bank, whether or not the director or
officer profited or will profit thereby.
The list of activities which may be
considered unsafe and unsound is shown
in Appendix 48.
X149.9 Sanctions. The Monetary
Board may, at its discretion and based on
the seriousness and materiality of the acts
or omissions, impose any or all of the
following sanctions provided under Section
37 of R.A. No. 7653 and Section 56 of R.A.
No. 8791, whenever a bank conducts
business in an unsafe and unsound manner:
a. Issue an order requiring the bank
to cease and desist from conducting
business in an unsafe and unsound manner
and may further order that immediate
action be taken to correct the conditions
resulting from such unsafe or unsound
practice;
b. Fines in amounts as may be
determined by the Monetary Board to be
appropriate, but in no case to exceed
P30,000 a day on a per transaction basis
taking into consideration the attendant
circumstances, such as the gravity of the
act or omission and the size of the bank, to
be imposed on the bank, their directors
and/or responsible officers;
c. Suspension of interbank clearing
privileges/immediate exclusion from
clearing;
Part I - Page 72
d. Suspension of rediscounting
privileges or access to BSP credit facilities;
e. Suspension of lending or foreign
exchange operations or authority to
accept new deposits or make new
investments;
f. Suspension of responsible directors
and/or officers;
g. Revocation of quasi-banking
license; and/or
h. Receivership and liquidation under
Section 30 of R.A. No. 7653.
All other provisions of Sections 30 and
37 of R.A. No. 7653, whenever appropriate,
shall also be applicable on the conduct of
business in an unsafe or unsound manner.
The imposition of the above sanctions
is without prejudice to the filing of
appropriate criminal charges against
culpable persons as provided in Sections
34, 35 and 36 of R.A. No. 7653.
Sec. X150 Rules of Procedure on
Administrative Cases Involving Directors
and Officers of Banks. The rules of
procedure on administrative cases
involving directors and officers of banks are
H. BANKING OFFICES
Sec. X151 Establishment/Relocation/
Voluntary Closure/Sale of Branches. The
BSP shall promote healthy competition in the
banking system and maximize the delivery
of efficient banking services especially in
underserved areas. Toward this end, the
following are the rules and regulations that
shall govern the establishment, relocation,
voluntary closure and sale of local branches
of domestic banks, including locallyincorporated subsidiaries of foreign banks
and the establishment of branches of
foreign banks in the Philippines shall
continue to be governed by the provisions
of Secs. X121 and X153.
X151 - X151.2
08.12.31
For purposes of this Section and its

Subsections, the following definitions
shall apply:
Branch shall refer to any permanent
office or place of business in the Philippines
other than the head office where deposits
are accepted and/or withdrawals are
serviced by tellers or other authorized
personnel. It maintains a complete set of
books of accounts.
Extension office shall refer to any
permanent office or place of business in the
Philippines other than the head office or a
branch, where deposits are accepted and/
or withdrawals are serviced by tellers or
other authorized personnel. It does not
maintain a complete set of books of
accounts as its transactions are taken-up
directly in the books of the head office or a
branch to which it is attached. It shall be
treated as a branch for purposes of this
Section and its Subsections.
Other banking office shall refer to any
office or place of business in the Philippines
other than the head office, branch or
extension office, which primarily engages
in banking activities other than the
acceptance of deposits and/or servicing of
withdrawals thru tellers or other authorized
personnel. It shall include loan collection
and disbursement points (LCDPs) of
microfinance-oriented banks and
microfinance/barangay micro business
enterprise (BMBE)-oriented branches of
banks which may accept deposits solely
from existing microfinance/BMBE
borrowers: Provided, That account
openings and other banking transactions of
said microfinance/ BMBE borrowers shall
be done only at the head office/branches/
extension offices or thru automated teller
machines (ATMs), as may be applicable.
X151.1 Prior Monetary Board

approval. No bank operating in the
Philippines shall establish branches,
extension offices or other banking offices
or transact business outside the premises
of its duly authorized principal office or
head office without the prior approval of
the Monetary Board.

of authority to establish a branch. With
prior approval of the Monetary Board,
banks may establish branches subject to the
following pre-qualification requirements:
a. The bank has complied with the
minimum capital requirement under
Subsec. X106.1, but not lower than P10
million, in the case of RBs and Local
Cooperative (Coop) Banks.
b. The banks risk-based CAR at the
time of filing the application is not lower
than twelve percent (12%);
c. The banks CAMELS composite
rating in the latest examination is at least
3, with management component score
not lower than 3;
d. The bank has established a risk
operations, characterized by clear
management, adequate risk measurement
system, appropriately structured risk limits,
effective internal control system and
complete, timely and efficient risk reporting
system;
e. T h e b a n k h a s n o m a j o r
supervisory concerns outstanding on
safety and soundness as indicated by
the following during the period
application or as of the date of
application:
Part I - Page 73
X151.2
08.12.31
(1) No unbooked
valuation reserves
as of date of
application
(2) No deficiency in
regular and liquidity
reserve requirements
on deposits and deposit
substitutes
12 weeks
asset and liquid asset
cover for EFCDU/
FCDU liabilities
3 months
(4) Compliant with

ceilings on loans
to DOSRI
12 weeks
1) NCR and the

Cities of Cebu and
Davao
liquidity floor on
government deposits
3 months
as of date of
application
(8) No float items outstanding 3 months

in the Due From/To Head
Office/Branches/Offices
and Due from BSP
accounts exceeding
one percent (1%) of the
total resources as of end
of the month
(9) No uncorrected findings
of unsafe and unsound
banking practices
as of date of
application
(10) Has adequate accounting as of date of

records, systems,
application
procedures and internal
control
(11) Has generally complied
with banking laws, rules
and regulations, orders
or instructions of the
Monetary Board and/or
BSP Management
as of date of
application
(12) Member in good

standing of the PDIC
as of date of
application
Part I - Page 74
(In millions)
LOCATION/
TYPE OF BANK
(6) Compliant with

as of date of
the single borrowers
application
loan limit and limit on
total investment in real
estate and improvements
including bank equipment
(7) No past due obligation
with the BSP or with
any FI
f. For purposes of evaluating branch

applications, theoretical capital shall be
assigned to each branch to be established,
including approved but unopened
branches, as follows:
UB/KB
TB/
RB/
NATIONAL LOCAL
COOP
COOP
P 50
P 15
P 5.0
2) 1st to 3rd class

cities
P 25
P 5.0
P 2.5
3) 4th to 6th class

cities
P 25
P 5.0
P 1.5
4) 1st to 3rd class

municipalities
P 20
P 5.0
P 1.0
5) 4th to 6th class

municipalities
P 15
P 2.5
P 0.5
The assigned theoretical capital shall

be deducted from existing qualifying
capital as defined under Subsec. X116.1
for purposes of determining compliance
with the ten percent (10%) risk-based CAR.
If the applicant banks risk-based CAR
after deducting the assigned capital for
the proposed branch from the existing
qualifying capital would be less than ten
percent (10%), its application shall not
be processed unless it infused such
amount as may be necessary to
maintain its risk-based CAR to at least
ten percent (10%);
g. The bank has been operating
profitably for the year immediately
preceding the date of application, or in the
case of newly-established banks, the
submitted projection showed that
profitability will be attained on the third
year of operations, at the latest; and
h. Additional requirements for the
establishment of microfinance/BMBE-
X151.2 - X151.4
08.12.31
oriented branches of banks which are not

microfinance/BMBE-oriented are as follows:
(1) The branch shall have a manual
of operations on microfinancing duly
approved by the banks board of
directors;
(2) The branch shall have an adequate
loan tracking system that allows daily
monitoring of loan releases, collections and
arrearages, and any restructuring and
refinancing arrangements;
(3) The proposed branch shall be
managed by a person with adequate
experience or training in microfinancing
activities; and
(4) At least seventy percent (70%) of the
deposits generated by the branch to be
established shall be actually lent out to
qualified microfinance/BMBE borrowers
and the microfinance/BMBE loans of said
branch shall at all times be at least fifty
percent (50%) of its gross loan portfolio.
A microfinance-oriented branch is a
branch that provides financial services and
caters primarily to the credit needs of basic
or disadvantaged sectors such as those
specified under the second paragraph of
Subsec. X102.2, so as to enable them to
raise their income levels and improve their
living standards. Microfinance loans are
granted on the basis of the borrowers cash
flow and are typically unsecured.
A BMBE-oriented branch of a bank is
a branch that caters primarily to the credit
needs of BMBEs duly registered under
R.A. No. 9178.
X151.3 Application for authority to

establish branches. An application for
authority to establish a branch shall be
signed by the president of the bank or officer
of equivalent rank and shall be
accompanied by the following information/
documents:
a. Business plan detailing the primary
banking activities/products and services to
be offered; competition analysis to show that

its application will not lead to over banking
in the target market; and financial projections
for the first three (3) years of operations
showing sustained viability, as may be
required by the appropriate department of the
SES: Provided, That normally operating UBs,
KBs, and TBs with total resources of P1 billion
or more shall be exempt from the foregoing
requirements, a bank is not considered
normally operating if it is under PCA or is
non-compliant with supervisory directives
duly confirmed by the Monetary Board. In the
evaluation of the business plan, due
consideration shall be given to banks that are
able or are committed to invest or deploy
branch resources in their area of operations;
b. Certified true copy of the resolution
of the banks board of directors authorizing
the establishment of the branch and
indicating its proposed site;
c. Organizational set up of the
proposed branch showing the proposed
staffing pattern; and
d. Certification/Undertaking signed by
the president of the bank or officer of
equivalent rank that the bank has complied
or will comply, as the case maybe, with the
prerequisites for the grant of authority to
establish a branch under Subsec. X151.2.
X151.4 Branching guidelines

Branches may be established, subject to the
following guidelines:
a. Only one (1) branch application
may be submitted at any time except for
banks with at least P100.0 million
combined capital accounts, as defined
under Sec. X106, which may be allowed a
maximum of five (5) including approved but
unopened branch applications, at any time;
b. Only applications submitted with
complete documentary requirements
enumerated in Subsec. X151.3 shall be
accepted. Processing shall be on a first
come, first-served basis;
Part I - Page 75
X151.4
08.12.31
c. Industry/market
notice
of
application for authority to establish a
branch shall be posted at the BSP website
upon receipt thereof;
d. As a general rule, banks shall be
allowed to establish branches anywhere in
the Philippines, except in the cities of
Makati, Mandaluyong, Manila, Paraaque,
Pasay, Pasig, Quezon and San Juan
(restricted areas): Provided, however, That
RBs/local Coop Banks shall not be allowed
to establish branches in Metro Manila:
Provided, further, That
(1) Branches of microfinance-oriented
banks, microfinance/BMBE-oriented
branches of banks which are not
microfinance/BMBE-oriented may be
established anywhere, subject to compliance
with, among other requirements, the
minimum capital requirement under Item a
of Subsec. X151.2 and the following
conditions:
(a) A microfinance-oriented TB or RB
may be allowed to establish a branch in Metro
Manila, including in the restricted areas, if it
has combined capital accounts of at least
P325.0 million in case of a TB, or at least
P100.0 million in case of an RB; and
(b) A TB or RB/local Coop Bank may
be allowed to establish a microfinance/
BMBE-oriented branch in Metro Manila,
including in the restricted areas, if it has
combined capital accounts of at least
P325.0 million in case of a TB, or at least
P100.0 million in case of an RB/local
Coop Bank.
(2) Subject to the submission of the
specific business purpose for establishing
the branch, among other justifications:
(a) A TB or RB with head office located
outside the restricted areas with combined
capital accounts of at least P500.0 million
may be allowed to establish one (1) branch
anywhere within the restricted areas if it
has no existing branch/es in said areas; and
(b) An RB with head office located
outside Metro Manila with combined
Part I - Page 76

may be allowed to establish one (1) branch
anywhere in Metro Manila, including in
the restricted areas, if it has no existing
branch/es in Metro Manila.
(3) A TB with combined capital
accounts of at least P325.0 million may
establish branches in Metro Manila, except
in the restricted areas.
(4) Subject to the restrictions in Items
5, 6, 7 and 8 hereof, an RB with
combined capital accounts of at least P10.0
million, may establish branches in cities/
municipalities of higher classification and
with corresponding higher capitalization
requirements, except in Metro Manila:
Provided, That where the majority of the
RBs total assets and/or majority of its
total deposit liabilities are regularly
accounted for by branches located in
such cities/municipalities of higher
classification, the RB shall comply with
the capitalization requirement of that
city/municipality within one (1) year
from the BSP finding.
(5) An RB or a local Coop Bank shall
only be allowed to establish branch/es if
its combined capital accounts is at least
P10.0 million;
(6) An RB or local Coop Bank with
combined capital accounts of at least P10.0
million but less than P50.0 million may
establish branch/es anywhere within two
(2) - hour normal travel time by land/sea
public transport from the head office,
except in Metro Manila; and
(7) An RB with combined capital
accounts of at least P50.0 million but less
than P100.0 million may establish branch/
es in any island group (Luzon, Visayas or
Mindanao) where the head office is
located, except in Metro Manila;
(8) An RB with at least P100.0 million
capital accounts may establish branch/es
anywhere in the Philippines, except in
Metro Manila unless qualified under Items
d(1) and d(2) above.
X151.4 - X151.7
08.12.31
e. A maximum of two (2) branches

shall be allowed in each of the 4th, 5th or 6th
class municipalities; and
f. The Monetary Board may decide
to disapprove an otherwise qualified
branch application if in its determination
such branch application will lead to an
overbanking situation in the specific
market.
X151.5 Branch processing fee

Branch processing fee shall be as follows:
a.
b.
c.
d.
UBs/KBs/
Affiliated TBs
Non-affiliated TBs/
National Coop Banks
RBs/Local Coop Banks
Microfinance-oriented
banks or microfinance/
BMBE-oriented branches
of banks
- P 200,000
- P 100,000
- P 25,000
-P
5,000
Provided, That branches of TBs, RBs

and local Coop Banks to be established
within the region where the head office is
located shall be free from assessment.
X151.6 Establishment of other

banking offices. Other banking offices may
be established with prior Monetary Board
approval, and subject to compliance with
the following:
a. Minimum capital requirement
under Subsec. X106.1 but not lower than
P10.0 million in the case of RBs and local
Coop Banks;
b. Ten percent (10%) risk-based CAR;
c. CAMELS composite rating not
lower than 3, with management
component score not lower than 3 in the
latest examination of the bank; and
d. Ceiling on total investments of a
bank in real estate and improvements
thereon, including bank equipment.
The application to establish other
banking offices shall be signed by the
president of the bank or officer of equivalent

rank and submitted to the appropriate
department of the SES together with the
following documents:
1. Certified true copy of the resolution of
the banks board of directors authorizing
the establishment of the other banking
office and indicating its proposed site;
2. Purpose statement indicating the
banks objective or reason for establishing
the other banking office; and
3. Undertaking signed by the
rank that said other banking office shall not
accept deposits and/or service withdrawals
thru tellers or other authorized personnel.
In the case of LCDPs of microfinanceoriented banks and microfinance/
BMBE-oriented branches of banks, the
undertaking shall state that the LCDP shall
accept deposits thru tellers or other
authorized personnel solely from existing
microfinance/BMBE borrowers.
Other banking offices may be
established only in areas where the bank is
allowed to establish branches as provided
under Subsec. X151.4.
Transitory provision. Other banking
offices existing as of 01 November 2008,
which are manned by less than three (3)
officers/employees at any time, accepting
deposits through tellers or other authorized
personnel, and are located in areas where
the banks concerned are allowed to
establish branches under the guidelines
prescribed in this Section may apply for the
conversion of these other banking offices
to branches or extension offices subject to
compliance with the guidelines on the
establishment of branches, otherwise, these
other banking offices shall phase-out their
deposit operations within one (1) year from
01 November 2008.
X151.7 Date of opening. Approved

branches/other banking offices shall be
opened within six (6) months from the date
Part I - Page 77
X151.7 - X151.9
08.12.31
of approval thereof: Provided, That an

applicant bank may be given a final
extension of another six (6) months by the
Deputy Governor, SES, subject to the
presentation of justification and valid reason
for the failure to open the branch/other
banking office within the original six (6) month period and proof that said branch/
other banking office can be opened within
the succeeding six (6) - month period.
X151.8 Requirements for opening a

branch/other banking office. After a banks
application to establish a branch/other
banking office has been approved, it may
open the same subject to its submission to
the following:
a. Within thirty (30) calendar days
prior to the intended date of opening,
personal information sheet (bio-data) of the
proposed manager and other officers of the
branch/other banking office; and
b. Within ten (10) banking days prior
to the intended date of opening, a
certification signed by the head of the
Branches Department with the rank of a vice
president, or its equivalent or by a higher
ranking officer that the installation of the
required security devices under Item b of
Subsec. X171.4 has been complied with.
The bank shall likewise submit a written
notice to the appropriate department of the
SES of the actual date of opening of its
branch/other banking office not later than
five (5) banking days from such opening,
together with a certification signed by the
head of the branches department with the
rank of a vice president, or its equivalent or
by a higher ranking officer that the
requirements enumerated under Subsec.
X151.2/X151.6 have been complied with
as of the time of actual opening of the
branch/other banking office.
A bank that fails to comply with any one
(1) of the requirements in Subsec.X151.2/
Part I - Page 78
X151.6 as of the date of the intended

opening of the branch/other banking office
shall refrain from opening the branch/other
banking office on such date until it has
complied with all of the requirements under
Subsec. X151.2/ X151.6: Provided, That if
the branch/other banking office, cannot
open within six (6) months from the date of
the original approval of the establishment
of such branch/other banking office, the
provisions of Subsec. X151.7 on the final
extension to open the branch/other banking
office shall be observed.
X151.9 Relocation of branches/other

banking offices. Relocation of existing/
operating branches/other banking offices
shall be allowed without prior Monetary
Board approval in accordance with the
following procedures:
a. Notice of relocation shall be sent
to depositors and other creditors, where
applicable, by registered mail or proof of
delivery (POD) service of the Philippine
Postal Corporation (PhilPost) or other mail
couriers and posters shall be displayed in
conspicuous places in the premises of the
branch/other banking office to be relocated
at least three (3) months prior to the
relocation: Provided, That said notification
period may be reduced to forty-five (45)
calendar days under any of the following
circumstances:
(1) as an incentive to merger or
consolidation of banks;
(2) as an incentive to the purchase or
acquisition of majority or all of the outstanding
shares of stock of a distressed bank for the
purpose of rehabilitating the same; or
(3) the proposed relocation site is
within the same barangay of the branch/
other banking office to be relocated.
b. Within five (5) banking days from
the date of relocation, a notice of relocation
head of the Branches Department with the
X151.9 - X151.10
08.12.31
rank of vice president or its equivalent rank

or by a higher ranking officer that the
notification requirement under Item a
above has been complied with shall be
submitted to the appropriate department
of the SES. The certification shall be
accompanied by a certified true copy of
the resolution of the banks board of
directors authorizing the relocation;
c. Branches located in the restricted
areas may be relocated anywhere;
d. Branches located in other areas
may be relocated anywhere except in the
restricted areas: Provided, That branches
of TBs may be relocated in Metro Manila
but outside the restricted areas if they have
complied with the minimum capital
requirement for TBs with head offices in
Metro: Provided further, That branches of
RBs and local Coop Banks may be
transferred only in areas where they are
allowed to establish branches: Provided
finally, That existing branches of RBs and
local Coop Banks in cities and
municipalities of Metro Manila other than
in the restricted areas may be relocated
anywhere, except in the restricted areas; and
e. Other banking offices may be
relocated only in areas where the banks
branches are allowed to be relocated as
indicated in Items c and d above.
X151. 10 Voluntary closure/sale of

branches/other banking offices
a. Voluntary closure of branches/
other banking offices. Voluntary closure
of branches/other banking offices may be
effected only with prior approval of the
Monetary Board in accordance with the
(1) Request for Monetary Board
approval of the closure of branches/other
banking offices signed by the president of
the bank or officer of equivalent rank,
together with a certified true copy of the
authorizing the closure and stating the

justification/reasons therefor, shall be
submitted to the appropriate department of
the SES;
(2) Upon receipt of the notice of
Monetary Board approval but at least three
(3) months prior to the closure, notice of
closure shall be sent to depositors and other
creditors by registered mail or POD service
of the PhilPost or other mail couriers and
posters shall be displayed in conspicuous
places in the premises of the branch/banking
office to be closed: Provided that said
notification period may be reduced to forty
five (45) calendar days under any of the
following circumstances:
(a) As an incentive to merger or
(b) As an incentive to the purchase or
acquisition of majority or all of the
outstanding shares of stock of a distressed
bank for the purpose of rehabilitating the
same; or
(c) The proposed relocation site is
within the same barangay of the branch/
other banking office to be relocated; and
(3) Within five (5) banking days from
date of closure, a notice of closure, together
with a certification signed by the president
of the bank or officer of equivalent rank,
that the notification requirement in Item 2
above has been complied with, shall be
the SES.
Temporary closure of branches/other
banking offices. Temporary closure of
branches/ other banking offices for the
purpose of undertaking renovations/major
repairs of branch/office premises/facilities
may be allowed for a period not exceeding
six (6) months subject to the prior approval
of the Deputy Governor, SES, and
compliance with the following conditions:
(1) Request for approval of the
temporary closure of the branch/other
banking office signed by the president of
the bank or officer of equivalent rank shall
Part I - Page 79
X151.10
08.12.31
be submitted to the appropriate department

of the SES, together with a certified true copy
of the resolution of the banks board of
directors authorizing said closure stating the
justifications/reasons therefor. The request
shall include information as to the timetable
for said closure and the branch/other
banking office that will handle the
transactions of the branch/other banking
office to be closed;
(2) Upon receipt of notice of approval
by the Deputy Governor, SES, but at least
three (3) months prior to the intended date
of closure, notice of temporary closure shall
be sent to depositors and other creditors,
where applicable, by registered mail or
POD service of the Philpost or other mail
couriers, and posters shall be displayed in
conspicuous places in the premises of the
branch/other banking office to be closed.
Information as to the duration of said closure
and the address of the branch/other banking
office that will handle the transactions of the
branch/other banking office to be closed
shall be indicated in the said notice/posters;
(3) The transactions of the branch/other
banking office to be closed shall be handled
by the branch/other banking office nearest to
the branch/other banking office to be closed;
(4) Within five (5) banking days after
the date of closure, a notice of such closure
signed by the head of the branches
department with the rank of a vice
president, or its equivalent or by a higher
ranking officer together with a certification
that the notification requirement under Item
2 above has been complied with shall be
the SES.
(5) Within five (5) banking days after
re-opening of the branch/other banking
office, notice of such re-opening signed by
the head of the branches department with
the rank of a vice president, or its equivalent
or by a higher ranking officer shall be
the SES.
Part I - Page 80
b. Sale of branches/other banking

offices. Sale of branches/other banking
offices may be allowed with prior approval
of the Monetary Board in accordance with
the following procedures:
(1) In the case of sale of branches, the
selling and acquiring banks shall secure the
prior written consent of the PDIC in the
transfer of assets and assumption of
liabilities as provided under Section 21 of
the PDIC Charter (R.A. No. 3591), as
amended by R.A. No. 9302;
approval to close the branches/other
banking offices to be sold signed by the
rank, together with a certified true copy of
directors authorizing the sale shall be
submitted by the selling bank to the
appropriate department of the SES;
(3) Upon receipt of the notice of
(3) months prior to the closure, notice of
sale shall be sent to depositors and other
creditors, where applicable, by registered
mail or POD service of the Philpost or other
mail couriers, and posters shall be displayed
in conspicuous places in the premises of
the branch/other banking office to be sold:
Provided, That said notification period may
be reduced to forty five (45) calendar days
when there is no actual closure or
disruption of operations. Depositors shall
likewise be informed of their option to
withdraw their deposits or to maintain the
same with the acquiring bank;
(4) Within five (5) banking days from
the date of closure, a notice of such closure,
rank that the notification requirement under
Item 3 above has been complied with,
shall be submitted to the appropriate
department of the SES;
approval to acquire the branch/other
X151.10 - X151.12
08.12.31
banking office signed by the president of

the bank or officer of equivalent rank,
together with a certified true copy of the
authorizing the acquisition shall be
submitted by the acquiring bank to the
appropriate department of the SES. The
acquiring bank shall likewise comply with
the following:
(a) Minimum capital requirement
under Subsec. X106.1 but not lower than
ten (P10) million in the case of of RBs and
local Coop Banks;
(b) Ten percent (10%) risk-based CAR;
(c) CAMELS composite rating not lower
than 3 with management component
score not lower than 3 in the latest
examination of the bank; and
(d) Ceiling on total investments of a
bank in real estate and improvements
thereon, including bank equipment.
A UB, KB or TB may purchase/acquire
branches/other banking offices anywhere,
including in Metro Manila and in the
restricted areas: Provided, That a TB may
purchase/acquire branches/other banking
offices in Metro Manila, including in the
restricted areas, if it has combined capital
accounts of at least P325 million: Provided,
further, That an RB/local Coop Bank may
purchase/acquire branches/other banking
offices only in areas where it is allowed to
establish branches/other banking offices as
provided under Subsec. X151.4;
(6) The acquiring bank shall pay a
licensing fee per branch/other banking
office acquired, as follows:
Location of Branch/Other Banking
Office to be Acquired
Type of
Acquiring
Bank
UBs and KBs
TBs
Within
Metro Manila
P 1.0 million
P 0.5 million
Outside
Metro Manila
P 0.5 million
P 0.25 million
(7) Within thirty (30) calendar days

prior to the intended date of opening of
the acquired branch/other banking office,

the personal information sheet (bio-data) of
the proposed manager and other officers of
the branch/other banking office shall be
submitted by the acquiring bank to the
appropriate department of the SES; and
(8) Within five (5) banking days from the
date of opening of the acquired branch/other
banking office, a written notice of such
opening signed by the head of branches
department with the rank of vice president or
its equivalent rank or by a higher ranking
officer shall be submitted by the acquiring
bank to the appropriate department of the SES.
X151.11 Relocation/Transfer of
branch licenses of closed banks. Buyers of
closed banks shall be allowed to relocate/
transfer acquired branches subject to the
conditions stated under Items c and d
of Subsec. X151.9.
X151.12 Sanctions
1. Any violation of the provisions of
this Section shall be a ground for the
cancellation of the franchise and closure
of any branch/other banking office
established hereunder without prejudice
to the imposition of the applicable
criminal and administrative sanctions
prescribed under Sections 36 and 37,
respectively, of R.A. No. 7653; and
2. If any part of any certification
submitted by the bank as required in this
Section is found to be false, the following
sanctions shall be imposed:
a. On the bank. Suspension for one (1)
year of the privilege to establish and/or open
approved branches/other banking offices,
and/or relocate branches/other banking
offices.
b. On the certifying officer. A fine of
P5,000 per day (P200 per day for RBs/Coop
Banks) from the time the certification was
made up to the time the certification was
Part I - Page 80a
X151.12 - X153
08.12.31
found to be false for each branch/other

banking office opened, relocated, closed or
sold without prejudice to the sanctions
under Section 35 of R.A. No. 7653.
Sec. X152 Relocation of Head Offices

Relocation of a banks head office shall require
prior approval of the Monetary Board in
accordance with the following procedures:
a. Request for Monetary Board
approval of the relocation of the banks head
office signed by the president of the bank
or officer of equivalent rank shall be
the SES together with the following
documentary requirements:
(1) A certified true copy of the
authorizing the proposed relocation/transfer
of the head office, and stating the
justification/reasons therefor;
(2) A certified true copy of
stockholders resolution authorizing the
amendment of the articles of
incorporation of the bank;
(3) Description of the building and/or
place of relocation, manner of occupancy,
i.e., whether lease or purchase, estimate of
the total costs to be incurred in connection
with the transfer, and the proposed timetable
for such relocation; and
(4) Plan for the disposition of the
original site.
b. Upon receipt of the notice of
(3) months prior to the relocation, notice of
relocation shall be sent to depositors and
other creditors by registered mail or POD
service of the Philpost or other mail couriers,
and poster shall be displayed in conspicuous
places in the premises of the head office to
be relocated: Provided, That said
notification period may be reduced to
forty-five (45) calendar days under any of
the following circumstances:
(1) As an incentive to merger or
Part I - Page 80b
(2) As an incentive to the purchase or

acquisition of majority or all of the outstanding
shares of stock of a distressed bank for the
purpose of rehabilitating the same; or
(3) The proposed relocation site is
within the same municipality/city of the
head office to be relocated.
c. Within five (5) banking days from
the date of relocation, a notice of relocation,
rank that the notification requirement under
Item b above has been complied with
department of the SES.
A banks head office may be relocated
only in areas where the bank may be
authorized to establish branches as provide
in Subsec. X151.4.
The executive offices of the bank shall
not be separated from the head office, i.e.,
these shall be located where the banks
head office is located.
Relocation of any other department/unit
of the bank not performing front-office
operation, i.e., not dealing with the banking
public, shall not require prior Monetary
Board approval: Provided however, That
within five (5) banking days from date of
relocation, a notice of relocation signed by
a vice president or officer of equivalent rank
or by a higher ranking officer, together with
a certified true copy of the resolution of the
banks board of directors authorizing the
relocation, shall be submitted to the
appropriate department of the SES.
X152.1 Sanctions. If any part of the

certification submitted by the bank as required
in this Section is found to be false, the sanctions
under Subsec. X151.12 shall be imposed.
Sec. X153 Establishment of Additional
Branches of Foreign Banks. The following
guidelines shall govern the establishment
of additional branches of foreign banks in
the Philippines pursuant to R.A. No. 7721.
X153 - X153.4
05.12.31
For purposes of this Section, the term

bank shall refer to the existing branches of
the applicant bank in the Philippines
reckoned as a single unit.
In the case of a foreign bank which has
more than one (1) branch and/or other
office in the Philippines, all such branches/
offices shall be treated as one (1) unit and
all references to the Philippine branches/
offices of such foreign bank shall be held
to refer to such unit pursuant to Section 74
of the R.A. No. 8791.
establish additional branch. An application
for authority to establish additional branch
or branches shall be signed by the Country
Manager or the highest ranking officer in
the Philippines of the applicant foreign
bank, and shall be accompanied by the
following information/documents:
a. Certified true copy of the resolution
the establishment of the additional branch/
es and indicating its proposed site/s and/or
authority of the banks Country Manager
or highest ranking officer in the Philippines
to apply for authority to establish additional
branch/es and represent the bank in
connection therewith;
b. Banking facilities and services to be
offered;
proposed branch showing the proposed
staffing pattern; and
d. Certification signed by the banks
Country Manager that the banks existing
branches in the Philippines reckoned as a single
unit, have complied with all the requirements
enumerated under Subsec. X153.2.
X153.2 Requirements for
establishment of additional branch. In
addition to the standard pre-qualification
requirement for the grant of banking
authorities in Appendix 5, the applicant

bank shall comply with requirements
prescribed in Subsecs. X121.4 b and c, and
X121.6.
X153.3 Date of opening. The
opening of approved branches shall be
subject to the provisions of Subsec.
X151.6.
X153.4 Requirements for opening
a branch. After a banks application to
establish a branch has been approved, it
may open the same subject to the
a. Submission by the applicant bank
of a written notice at least thirty (30) days
accompanied by the following:
(1) Proof or evidence of inward
remittance needed to meet the
requirements prescribed in Subsecs.
X121.4 b and c, and X121.6;
(2) List of principal and junior officers
of the proposed branch/es and their
respective designations and salaries;
(3) Personal information sheet
(bio-data) for each of the officers to enable
the BSP to evaluate their qualifications as
officers; and
(4) A certification signed by the
banks Philippine Country Manager that
the requirements enumerated under
Subsec. X153.2 has been complied with
up to the date of the aforementioned
written notice.
A bank that fails to continuously comply
with the requirements under Subsec.
X153.2 shall be given an extension of time
to open such branch after it has shown
compliance for another test period of the
same duration required of each requirement
in Subsec. X153.2: Provided, That the
provisions of Subsec. X153.3 shall be
observed if the branch cannot open within
(Next Page is Part I - Page 81)
Part I - Page 80c
X153.4 - X154.2
05.12.31
six (6) months from the date of approval

thereof: Provided, further, That before such
branch opens for business, the bank shall
submit to the BSP the requirements under
Subsec. X153.4a with the certification to
the effect that the bank has complied with
requirements of Subsec. X153.2 up to the
date of the written notice within the period
prescribed therein;
b. The foreign bank branch has
adequate staff, equipment, and other
facilities to meet the needs of its
commercial banking operations: Provided,
That the banks premises, vault and office
equipment, after inspection by the
representatives of the SES of the BSP shall
have been found to be substantially in
compliance with specifications on security
standards and ready for use by the bank; and
c. Issuance by the Governor of the
permit to open and operate the approved
branch/es.
Banks shall submit a written notice to
the appropriate SED of the BSP of the actual
date of opening of their branches not later
than ten (10) banking days from such
opening.
X153.5 Choice of locations for
establishment of branches
a. A foreign bank authorized to
establish branches in the Philippines
pursuant to the provisions of R.A. No.
7721, may open its first three (3) branches
in locations of its choice.
b. The same foreign bank may open
its next three (3) additional branches only
in locations designated by the Monetary
Board to ensure balanced economic
development in all the regions.
X153.6 Sanctions. If a bank fails to
submit any certification as required in this
Section, or any part of the certification
submitted by the bank as required in this
Section is found to be false, the sanctions
under Subsec. X151.10 shall be imposed.
Sec. X154 Establishment of Offices

Abroad. The following rules shall govern
the establishment by domestic banks of
branches and other offices abroad.
For purposes of this Section, the term
offices shall include branches, agencies,
representative offices, remittance centers,
remittance desk offices and other offices.
establish an office abroad. An application
for authority to establish an office abroad
shall be signed by the president of the bank
and shall be accompanied by the following
information/documents:
the establishment of that office indicating
its proposed site;
b. Economic justification for such
establishment, indicating among other
things, the services to be offered, the
minimum outlay such as capital
requirement of the host country, outlay for
furniture, fixture and equipment, rental and
other expenses;
proposed office showing the proposed
positions and the names, qualifications and
experience of the proposed manager and
other officers;
d. Certification signed by the
president or the executive vice president
that the bank has complied with the
standard pre-qualification requirements for
the grant of banking authorities enumerated
in Appendix 5; and
e. Certification from the host country
that the duly authorized personnel/
examiners of the BSP will be authorized to
examine the proposed office.
X154.2 Requirements for
establishing an office abroad. In addition
to the standard prequalification
requirements of Appendix 5, the applicant
bank shall comply with the following:
Part I - Page 81
X154.2 - X154.5
05.12.31
a. The citizenship requirements,

ownership ceilings and other limitations on
voting stockholdings in banks under
existing law and regulations;
b. Experience and expertise in
international banking operations as shown
by:
(1) Its international banking operations
for at least three (3) years prior to the date
of application;
(2) Substantial income derived from
international banking operations; and
(3) Established correspondent relationship with reputable banks.
X154.3 Conditions attached to the
approved application. An approved
application to establish a banking office
abroad shall be subject to the following
conditions:
a. Without prejudice to the
qualification requirements in the country
where the office is to be established, the
proposed officer(s), at the time of
appointment must be at least:
(1) Twenty-five (25) years of age;
(2) A college graduate, preferably with
training and experience abroad;
(3) With three (3) years experience in
international banking operations; and
(4) Must not possess any of the
disqualification of an officer as provided for
under existing regulations;
b. The applicant bank shall comply
with the licensing requirements of the host
country and the necessary license to
operate shall be secured from the
appropriate government agency of the host
country;
c. The outward investment representing
initial capital outlay and other outlays shall
be subject to existing regulations;
d. The proposed office shall submit
periodic reports on its financial condition
and profitability and such other reports that
may be required by the BSP;
Part I - Page 82
e. An office not authorized to perform

banking business (e.g., representative and
liaison offices) shall not carry any of the
business of a bank as contemplated within
the context of the Philippine banking
system; and
f. The applicant shall defray the
necessary cost and expenses to be incurred
by the appropriate SED of the BSP.
X154.4 Date of opening. The
opening of any office abroad shall be
subject to the provisions of Subsec. X151.6.
X154.5 Requirements for opening
an office abroad. After a banks application
to establish a branch has been approved, it
may open the same subject to the following
conditions:
a. Submission by the applicant bank
of a written notice at least thirty (30) days
accompanied by the following:
(1) Proof or evidence of outward
remittance needed to meet the capital
requirements prescribed by the host
country;
of the proposed branch/es and their
respective designations and salaries; and
(3) Personal information sheet (Biodata) for each of the officers to enable the
BSP to evaluate their qualifications as
officers; and
b. A certification signed by the banks
president or executive vice president that
the standard prequalification requirements
enumerated in Appendix 5 have been
complied with up to the date of the
aforementioned written notice.
A bank that fails to continuously
comply with the requirements shall be
given an extension of time to open such
office after it has shown compliance for
another test period of the same duration
required of each requirement: Provided,
X154.5 - X156
08.12.31
That the provisions of Subsec. X151.6

shall be observed if the branch cannot
open within six (6) months from the date
of approval thereof: Provided, further,
That before such branch opens for
business, the bank shall submit to the
BSP the requirements under Subsec.
X154.5a together with a certification
stating that the bank has complied with
the
standard
prequalification
requirements in Appendix 5 up to the
date of the written notice within the
period prescribed therein.
certification submitted by the bank as
required in this Section is found to be false,
the sanctions under Subsec. X151.12 shall
be imposed.
X154.7 - X154.8 (Reserved)
X154.9 Establishment of a foreign
subsidiary by a bank subsidiary. The
establishment of a foreign subsidiary by a
bank subsidiary are subject to the
guidelines in Subsec. X382.8.
Sec. X155 Tellering Booths. The following
rules shall govern the establishment of
tellering booths in BIR offices:
a. As a general policy, the
establishment of tellering booths in BIR
offices are not authorized. However, in
cases where tellering booths in offices
are needed as determined by the BIR,
banks shall secure prior Monetary Board
approval;
b. A banks application shall be
accompanied by a letter from the BIR
Commissioner or Deputy Commissioner
or other officer specifically authorized by
the Commissioner to sign such letter,
stating that the BIR has agreed to allow the
applicant bank to establish a tellering
booth in the specified BIR office;
c. The applicant bank has complied

with the standard prequalification
requirements prescribed in Appendix 5; and
d. Tax collections received shall be
subject to rules on government deposits.
I. BANKING DAYS AND HOURS
Sec. X156 Banking Days and Hours
Banks, including their branches and
offices, doing business in the Philippines,
shall observe for the conduct of their
business a regular banking week of five
(5) days, except when such days are
holidays. The regular banking week
should fall on Mondays to Fridays unless
otherwise authorized by the BSP in the
interest of the banking public. On these
days, said institution shall transact
business for at least six (6) hours each day.
Subject to compliance with other
relevant laws, banks, including their
branches and offices, may opt to observe a
banking week in excess of the five (5) days
after reporting to the BSP the additional days
during which such banks or their branches
or offices shall transact business for at least
three (3) hours each day.
Without the need for prior approval of
the BSP, and even in the absence of an
approved local holiday, banks and/or their
branches or other offices are allowed to
close on certain days in celebration of
important historical and/or religious events
in the locality where these banks operate:
Provided, That said closure has the prior
approval of the bankers association in the
locality and in the case of bank branches,
their respective head offices: Provided,
further, That said closure will only be
allowed in the municipality or city where
the festivities are centered.
Banks and/or their branches or other
offices shall submit, either individually or
through their head offices, to the
appropriate department of the SES a prior
Part I - Page 83
X156 - X156.2
08.12.31
notice of their intended closure on

account of a specific local festivity,
together with a copy of the resolution of
the local bankers association approving
said closure, at least two (2) working days
before the intended date of closure.
The required notice shall be supported
by a certification that:
a. On the date of the temporary
closure, the bank and/or branch will
maintain a skeletal force to handle out-oftown clearing items in line with the
provisions of Section X603;
b. The notice of the banks closure and
the reason thereof shall be posted
conspicuously in the banks premises; and
c. For branches of banks, the closure
has the prior approval of their respective
head offices.
(As amended by Circular Nos. 634 dated 05 December 2008
and 624 dated 13 October 2008)
X156.1 Banking hours beyond the

minimum; banking services during
holidays. For purposes of servicing deposits
and withdrawals, banks may, at their
discretion, remain open beyond the
minimum six (6) hours and for as long as
they find it necessary, even before 8:00 AM
or after 8:00 PM. Banks may, after prior
written notice to the approriate department
of the SES, also remain open beyond the
minimum six (6) hours for banking services
other than the servicing of deposits and
withdrawals but in no case shall such
banking hours start earlier than 8:00 AM
nor extend beyond 8:00 PM: Provided,
however, That branches of banks at any
international airport or major fish port are
allowed to operate on flexible banking
hours within a twenty-four (24)-hour period,
subject to the condition that the individual
banks management will inform the BSP of
the schedule of its banking hours which shall
in no case be less than six (6) hours a day.
Banks and/or their branch/es and/or
extension offices may opt to remain open
Part I - Page 84
during any or all of their regular banking

days that were covered by holidays for the
purpose of servicing deposits and
withdrawals: Provided, That a bank opting
to open its head office and/or branch/es and/
or extension offices, shall submit to the
appropriate department of the SES at least
two (2) working days before the intended
date of opening of the banks head office
and/or branches and/or extension offices, a
notice signed by its president or officer of
equivalent rank, of its intention to open
during the holidays, together with a copy
of the board resolution approving the same:
Provided further, That the notice shall
specify which office (head office and/or
branch/es and/or extension offices) will
open on what dates and their schedule of
banking hours.
Subject to submission of a notice signed
by the bank president or officer of equivalent
rank, authorized agent banks of the BIR
(BIR-AABs), and/or its branch/es and/or
extension offices, are allowed to open for two
(2) Saturdays prior to April 15 of every year,
and daily from April 1 to income tax payment
deadline, to extend banking hours from 3:00
PM to 5:00 PM to receive internal revenue
tax payments. The notice, which shall specify
which office (head office and/or branch/es
and/or extension offices) will open or extend
banking hours on what dates, shall be
the SES on or before the last banking day of
March of every year.
X156.2 Report of, and changes in,

banking days and hours. The banking days
and hours selected for each of the offices of
banks shall be reported in writing to the
appropriate department of the SES. Banks
may change the banking days and hours
previously reported to the BSP by giving
prior written notice: Provided, That changes
in banking days or hours shall not be made
oftener than once every thirty (30) days,
X156.2 - X161.2
07.12.31
except during emergencies. Emergency

shall mean (a) condition of an area or
locality proclaimed by the President of the
Philippines as in a state of emergency; or
(b) an event or occasion or a combination
of circumstances equivalent to a public
calamity resulting from fire, flood, or like
disaster, or through some unusual
occurrence or pressing necessity not
reasonably subject to anticipation calling
for immediate action or remedy.
The prior written notice to the BSP on
changes in banking days and hours shall
be given through the fastest means of
communication, at least seven (7) banking
days before the intended effectivity of the
change in banking hours or days. In case
a bank, due to an emergency, has to open
outside, or close during, the banking
hours or days reported to the BSP, a
written report submitted within twenty-four
(24) hours from opening or closing, as the
case may be, will suffice. The report shall
state the specific nature of the emergency
and the period the bank opened or closed
or shall open or close by reason of
emergency.
X156.3 Posting of schedule of
banking days and hours. The schedule of
banking days and hours reported to the BSP
shall be posted conspicuously at all times
in the banks premises.
J.
RECORDS AND REPORTS
Sec. X161 Records. Banks shall have a true

and accurate account, record or statement
of their daily transactions, particularly those
referring to their deposit liabilities. The
making of any false entry or the willful
omission of entries relevant to any
transaction, is a ground for the imposition
of administrative sanctions under Section
37 of R.A. No. 7653 and the disqualification
from office of any director or officer

responsible therefor under Section 9-A of
R.A. No. 337, as amended. This is without
prejudice to their criminal liability under
Sections 35 and 36 of R.A. No. 7653 and/
or the applicable provisions of the Revised
Penal Code.
X161.1 Adoption of the Manual of
Accounts. Banks shall strictly adopt the
Manual of Accounts prescribed by the BSP
for recording daily transactions including
reportorial and publication requirements.
Local branches of foreign banks may
continue using their parent banks general
ledger accounts: Provided, That published
statements and reports submitted to the
BSP follow the account definitions in the
BSP-prescribed Manual of Accounts:
Provided, further, That the mathematical
formulas for reconciling such published
statements and submitted reports with the
general ledger accounts of the bank are
of the SES: Provided, finally, That said
banks prepare for BSP use, reconciliations
of their ledger accounts with the BSP
prescribed Manual of Accounts during
regular or special bank examinations.
Any bank which fails or refuses to
adopt the prescribed Manual of Accounts,
or any of the applicable accounts
contained therein, or adopts any general
ledger account not specified in the said
Manual of Accounts without prior written
approval of the Governor of the BSP, shall
be penalized by revocation or suspension
of its authority to engage in quasi-banking
function.
X161.2 Philippine Financial Reporting
Standards/Philippine Accounting Standards
Statement of policy. It is the policy of
the BSP to promote fairness, transparency
and accuracy in financial reporting. It is
in this light that the BSP aims to adopt all
Philippine Financial Reporting Standards
Part I - Page 85
X161.2 - 3161.9
07.12.31
(PFRS) and Philippine Accounting

Standards (PAS) issued by the Accounting
Standards Council (ASC) to the greatest
extent possible.
Banks shall adopt the PFRS and PAS
which are in accordance with generally
accepted accounting principles in
recording transactions and in the
preparation of financial statements and
reports to BSP. However, in cases where
there are differences between BSP
regulations and PFRS/PAS as when more
than one (1) option are allowed or certain
maximum or minimum limits are
prescribed by the PFRS/PAS, the option
or limit prescribed by BSP regulations
shall be adopted by banks.
For purposes hereof, the PFRS/PAS
shall refer to issuances of the ASC and
approved by the Professional Regulation
Commission (PRC).
Accounting treatment for prudential
reporting. For prudential reporting, banks
shall adopt in all respect the PFRS and PAS
except as follows:
a. In preparing consolidated financial
statements, only investments in financial
allied subsidiaries except insurance
subsidiaries shall be consolidated on a
line-by-line basis; while insurance and
non-financial allied subsidiaries shall be
accounted for using the equity method.
Financial/non-financial allied/non-allied
associates shall be accounted for using the
equity method in accordance with the
provisions of PAS 28 Investments in
Associates.
b. For purposes of preparing separate
financial statements, financial/non-financial
allied/non-allied subsidiaries/associates,
including insurance subsidiaries/associates,
shall also be accounted for using the equity
method; and
c. Banks shall be required to meet the
BSP recommended valuation reserves.
Government grants extended in the
form of loans bearing nil or low interest rates
Part I - Page 86
shall be measured upon initial recognition

at its fair value (i.e., the present value of
the future cash flows of the financial
instrument discounted using the market
interest rate). The difference between the
fair value and the net proceeds of the loan
shall be recorded under Unearned
Income-Others, which shall be amortized
over the term of the loan using the effective
interest method.
The provisions on government grants
shall be applied retroactively to all
outstanding government grants received.
FIs that adopted an accounting treatment
other than the foregoing shall consider the
adjustment as a change in accounting
policy, which shall be accounted for in
accordance with PAS 8.
Notwithstanding the exceptions in
Items a, b and c, the audited annual
financial statements required to be
submitted to the BSP in accordance with
the provision of Subsec. X164.1 shall in
all respect be PFRS/PAS compliant:
Provided, That FIs shall submit to the BSP
adjusting entries reconciling the balances
in the financial statements for prudential
reporting with that in the audited annual
financial statements.
X161.3 - X161.9 (Reserved)

1161.9 (Reserved)
2161.9 (Reserved)
3161.9 Retention and disposal of
records of rural/cooperative banks. To
guide RBs/Coop Banks in the disposition
of their records and documents which no
longer need to be retained and in
determining which of the records are of
permanent value and therefore should be
preserved, RBs/Coop Banks shall follow the
guidelines on retention and disposal of
records in Appendix 50.
X162 - X162.1
05.12.31
Sec. X162 Reports. Banks shall submit to

the appropriate department of the SES all
their statements and/or periodic reports
listed in Appendix 6 in such frequency and
deadlines indicated therein. In the
preparation of said statements/reports,
banks shall use and strictly follow the forms
prescribed by the BSP.
In line with the policy direction of R.A.
No. 8792 (E-Commerce Act), the BSP is
strongly encouraging banks to submit their
regular reports to the BSP in electronic form.
However, the BSP cannot presently
guarantee the security/confidentiality of
data in the course of electronically

transmitting reports to BSP. BSP
recommends that sensitive or confidential
information be provided by ordinary post
or courier. The BSP will accept no
responsibility for electronic messages/
reports/information that may be hacked or
cracked, intercepted, copied or disclosed
outside BSPs information system.
X162.1 Categories and signatories
of bank reports
a. Categories of reports. Reports
required to be submitted to the BSP by
Part I - Page 86a
X162.1 - X162.2
07.12.31
banks are grouped into Category A-1,

Category A-2, Category A-3 and Category
B reports as indicated in Appendix 6.
b. Authorized signatories
(1) Category A-1 reports shall be
signed by the banks chief executive
officer or, in his absence, by the executive
vice president, and by the comptroller or,
in his absence, by the chief accountant,
or officers holding equivalent positions.
(2) Category A-2 reports shall be signed
by the president, executive vice president,
vice president or by an officer holding
equivalent position.
(3) Category A-3 and Category B reports
shall be signed by officers or their alternates,
duly designated by the board of directors.
The designated signatories of
Categories A-1, A-2, A-3 and B reports
including their specimen signatures shall
be contained in a resolution approved by
the board of directors. A copy of the
board resolution covering the initial
designation and subsequent change(s) in
signatories as well as specimen signatures
of the signatories and alternates, shall be
of the SES in such frequency and within
the deadline indicated in Appendix 6.
(4) Reports in computer media that are
submitted by banks shall be subject to the
same requirements regarding authorized
signatories.
(5) Any report submitted to the BSP that
is signed by an officer who is not listed or
included in any of the resolutions
mentioned above, shall be considered as
not having been submitted at all.
(6) All authorized agent banks shall
submit to the Director, Branch
Operations, BSP, the updated specimen
signatures of Senior Bank Officers in their
respective Head Offices who are
authorized to authenticate the signatures
of their provincial branch officers
transacting business with the BSP
Regional Offices/Branches.
The BSP Branch Operations shall be

advised of any changes in authorized branch
signatories, as well as authenticating Head
Office Senior Officers.
c. Deadline for submission of reports
(1) Regular reports. Unless otherwise
specified, the deadlines for submission of
reports enumerated in Appendix 6, shall
be reckoned on the basis of banking days.
For this purpose, banking days shall be
understood to mean Monday through
Friday or banking days of the BSP.
(2) Call Reports. The deadline of
submission of call reports shall be specified
in the letter calling for the report.
X162.2 Sanctions in case of willful
delay in the submission of reports/refusal
to permit examination. For willful delay in
the submission of reports, specific sanctions
shall be imposed in accordance with the
following rules.
a. Definitions. For purposes of this
Subsection, the following definitions shall
apply.
(1) Report shall refer to any report or
statement required to be submitted by a
bank to the BSP.
(2) Willful delay in the submission of
reports shall refer to the failure of any
bank to submit on time the report defined
in Item a(1) above. Failure to submit a
report on time due to fortuitous events,
such as fire and other natural calamities,
and public disorders including strike or
lockout affecting a bank as defined in the
Labor Code, or of a national emergency
affecting operations of banks, shall not be
considered as willful delay.
(3) Examination shall include, but
need not be limited to, the verification,
review, audit, investigation and
inspection of the books and records,
business affairs, administration and
financial condition of any bank including
the reproduction of banking records, as
well as the taking possession of the books
Part I - Page 87
X162.2
07.12.31
and records and keeping them under BSPs

custody after giving proper receipts therefor.
It shall also include the interview of the
directors and personnel of any bank
including its Electronic Data Processing
(EDP) servicer. Books and records shall
include, but not limited to, data and
information stored in magnetic tapes, discs,
diskettes printouts, logbooks and manuals
kept and maintained by the bank or by the
EDP servicer, that are necessary and
incidental to the use of EDP systems by the
bank.
(4) Refusal to permit examination shall
mean any act or omission which impedes,
delays or obstructs the duly authorized
BSP officer/examiner/employee from
conducting an examination, including the
act of refusing to accept or honor a letter
of authority to examine presented by any
officer/examiner/employee of the BSP.
b. Fines for willful delay in the
submission of reports.
(1) Amount of fine. Any bank which
shall incur willful delay in the submission
of required reports shall pay a fine in
accordance with the following schedule:
(a) For Category A-1, A-2 and A-3
reports
(1) UBs/KBs
P1,200
(2) TBs
600
(3) RBs/Coop Banks
180
per day of default until the report is filed
with the BSP: Provided, That for the report
on compliance with the mandatory credit
allocation required under R.A. No. 6977 (as
amended by R.A. No. 8289) the amount of
fines shall be:
(i) UBs/KBs
- P 1,000
(ii) TBs
500
(iii) RBs/Coop Banks
250
per day of default until report is filed with
the BSP; and
(b) For Category B reports
(i) UBs/KBs
- P 240
(ii) TBs
120
(iii) RBs/Coop Banks
60
Part I - Page 88
per day of default until report is filed with

the BSP.
In the implementation of the foregoing
rules, delay or default shall start to run
on the day following the last day required
for the submission of reports. However,
should the last day of filing fall on a nonworking day in the locality where the
reporting bank is situated, delay or default
shall start on the day following the next
banking day. The due date/deadline for
submission of reports to BSP as prescribed
under Sec. X162 governing the frequency
and deadlines indicated in Appendix 6 shall
be automatically moved to the next banking
day whenever a half-day suspension of
business operations in government offices
is declared due to an emergency such as
typhoon, floods, etc.
Delayed schedules/attachments and
amendments shall be considered late
reporting subject to the above penalties.
(2) Manner of filing. For the purpose
of establishing delay or default, the
submission of reports shall be effected by
filing them with the appropriate department
of the SES or with the BSP Regional Offices,
or by sending them by registered mail or
by special delivery through a private
courier, unless otherwise specified in the
circular or memorandum of the BSP.
In the first case, the date of
acknowledgment by the appropriate
department of the SES or the BSP Regional
Office appearing on the copies of such
reports filed or submitted, and in the second
case, the date of mailing postmarked on the
envelope or the date of the registry receipt
or the date of special delivery receipt, shall
be considered as the date of filing.
c. Fines for refusal to permit
examination.
(1) Amount of fine - A bank which
shall willfully refuse to permit
examination shall pay a fine of P3,000
daily from the day of refusal and for as
long as such refusal lasts.
X162.2 - X162.4
07.12.31
(2) Basis and effectivity of the

imposition of fine.
(a) The BSP officer/examiner/
employee shall report the refusal of the
bank to permit examination to the head of
the appropriate department of the SES, who
shall forthwith make a written demand
upon the bank concerned for such
examination. If the bank continues to refuse
said examination without any satisfactory
explanation thereof, the BSP officer/examiner/
employee concerned shall submit a report to
that effect to the said department head.
(b) The fine shall be imposed starting
on the day following the receipt by the said
department of the written report submitted
by the BSP officer/examiner/employee
concerned regarding the continued refusal
of the bank to permit the desired examination.
d. Manner of payment or collection
of fines. The regulations embodied in
Subsec. X609.1 shall be observed in the
collection of fines from banks for willful
delay in the submission of reports or for
refusal to permit examination.
e. Other penalties. The imposition of
the foregoing penalties shall be without
prejudice to imposition of the other
administrative sanctions and to the filing of
a criminal case as provided for in other
provisions of law.
f. Appeal to the Monetary Board. An
aggrieved bank may appeal to the Monetary
Board any fine imposed by the BSP.
(As amended by Circular 585 dated 15 October 2007)
X162.3 Submission of certain

required information. Banks shall submit
to the appropriate department of the SES
the information on banks profile required
in Appendix 7. Any change in any of the
required information submitted, after the
initial submission, shall be reported to the
said department immediately.
Banks shall likewise submit to the said
department any or all of the documents/
information on banks organizational
structure and operational policies

enumerated in Appendix 8. Any subsequent
change/issuance should be furnished the
department within fifteen (15) banking days
from such change/issuance.
X162.4 Report on crimes/losses
Banks shall report on the following matters
to the appropriate department of the SES.
a. Crimes whether consummated,
frustrated or attempted against property/
facilities (such as robbery, theft, swindling
or estafa, forgery and other deceits) and
other crimes involving loss/destruction of
bank property when the amount involved,
in each crime is P20,000 or more.
Crimes involving bank personnel,
regardless of whether or not such crimes
involve the loss/destruction of bank
property, even if the amount involved is less
than P20,000, shall likewise be reported to
the BSP.
b. Incidents involving material loss,
destruction or damage to the banks
property/facilities, other than arising from a
crime, when the amount involved per
incident is P100,000 or more.
c. Definition of terms. For the purpose
of this regulation, the following definitions
shall apply:
(1) Estafa - a crime committed by a
person who defrauds another causing the
latter to suffer damage by means of any of
the following:
(a) unfaithfulness or abuse of confidence;
(b) false pretense; or
(c) fraudulent acts/means, under
Articles 315 to 317 of the Revised Penal
Code, as amended.
(2) Theft - a crime committed by a
person who, with intent to gain but without
violence against or intimidation of persons
nor force upon things, shall take personal
property of another without the latters
consent pursuant to Article 308 and other
pertinent provisions of Chapter III, Title X
of the Revised Penal Code, as amended.
Part I - Page 89
X162.4
07.12.31
(3) Robbery - a crime committed by a

person who, with intent to gain, shall take
any personal property belonging to another,
by means of violence against or intimidation
of any person, or using force upon anything
pursuant to Article 295 and other pertinent
provisions of Chapter 1, Title X of the
Revised Penal Code, as amended.
(4) Falsification a crime committed by
a person who falsifies a document by
(a) Counterfeiting or imitating any
handwriting, signature or rubric;
(b) Causing it to appear that persons
have participated in any act or proceeding
when they did not in fact so participate;
(c) Attributing to persons who have
participated in an act or proceeding
statements other than those in fact made by
them;
(d) Making untruthful statements in a
narration of facts;
(e) Altering true dates;
(f) Making any alteration or
intercalation in a genuine document which
changes its meaning;
(g) Issuing in an authenticated form a
document purporting to be a copy of an
original document when no such original
exists, or including in such a copy a
statement contrary to, or different from, that
of the genuine original; or
(h) Intercalating any instrument or note
relative to the issuance thereof in a protocol,
registry, or official book and other acts falling
under Articles 169, 171 and 172 of the
(5) Credit-card related crimes crimes
arising through the use of credit cards.
(6) Other crimes that may cause loss to
the bank crimes committed that cannot
be appropriately classified under any of the
above classifications.
(7) Negligence - the failure to exercise
the care which an ordinarily prudent person
would use under the circumstances in the
discharge of the duty then resting upon him
(People v. Aguilar, 2899-R, 18 October 1949).
Part I - Page 90
(8) Non-crime related loss Incidents

that may cause the bank to suffer a loss
arising from fortuitous events.
(9) Insider person involved include
stockholders, directors, officers and
employees of the bank.
(10) Outsider persons involved other
than an insider.
(11) Perpetrator a person, whether an
insider or outsider, who is responsible for
the commission of crime either by direct
participation, inducement or cooperation,
including accomplices and accessories as
defined under Articles 18 and 19 of the
(12) Victim an insider or outsider other
than the perpetrator, who is the aggrieved
party to the crime and may as a result of the
incident, suffered the loss.
(13) Attempted crime - a crime is
attempted when the perpetrator commences
the commission of the crime directly by
overt acts but does not perform all of the
acts of execution which constitute the crime
by reason of some cause or act other than
his own voluntary desistance under Article
6 of the Revised Penal Code, as amended.
(14) Frustrated crime - a crime is
classified as frustrated, when the perpetrator
performs all the acts of execution which
should produce the crime as a consequence
but which, nevertheless, do not produce it
by reason of causes independent of the will
of the perpetrator under Article 6 of the
(15) Consummated crime a crime is
consummated when all the acts of
execution which constitute the crime was
performed. As a result, the bank may have
suffered a loss, the recoverable portion of
which should be deducted to arrive at the
probable loss incurred by the bank.
(16) Termination of the investigation an investigation is said to be terminated
when all the material facts/information
which are sufficient to support a conclusion
relative to the matters involved have already
X162.4 - X162.6
07.12.31
been gathered and a finding/conclusion

may be made based on the gathered
information.
d. The following guidelines shall be
observed in the preparation and
submission of the report:
(1) The Branch or Head Office units
Report on Crimes and Losses shall be
submitted to the BSP through the banks
head office unit and shall be certified
correct by the compliance officer. The
report shall be assigned a prescribed
reference number by the bank using the
format mm-yyyy-xxx with mm and yyyy as
numeric code for the month and year of
reporting respectively and xxx as
sequence no. (e.g. 01-2007-001) which
shall be a continuing series until the end
of the year.
The report shall be prepared using the
new format in two (2) copies and shall be
submitted to the SDC and to the BSP
Security Coordinator, thru the Director,
Security, Investigation and Transport
Department (SITD) within ten (10) calendar
days from knowledge of the crime/
incident;
(2) Where a thorough investigation
and evaluation of facts is necessary to
complete the report, an initial report
submitted within deadline may be
accepted: Provided, That a complete report
is submitted not later than twenty (20)
calendar days from termination of
investigation.
Moreover, final reports on crimes and
losses with incomplete information as
required under SES Form 6G shall be
considered erroneous reports and the
concerned bank shall be required to submit
amended reports subject to penalties on
late reporting for Category B reports under
Subsec. X162.2; and
(3) Proof of submission of the
report
shall
be determined by the
date of postmark, if the report was sent by
mail or by the date received, if handcarried

to the SDC and SITD.
X162.5 Report on real estate/chattel

transactions. Banks shall within ten (10)
banking days from approval of the transaction:
a. Report to the appropriate
department of the SES, any real estate/
chattel transaction (such as, but not limited
to, rentals or leases, purchases and sales,
of foreclosed assets) between the bank and
its director(s), officer(s), employee(s), or
between the bank and its stockholder(s) or
their related interest(s), as defined under
Items c and e, respectively, of Subsec.
X326.1; and
b. Certify to the BSP that such
transaction has been thoroughly reviewed
and verified as having been entered into in
the best interest of the bank.
(As amended by Circular No. 525 dated 04 April 2006)
X162.6 Reconciliation of head office

and branch transactions. Banks shall
prepare reconciliation statements covering
transactions between the head office and all
its branches within thirty (30) banking days
after the end of each month.
All items which are unresponded or
outstanding in the reconciliation statement
for more than (6) months as of reconciliation
statement date shall be reported, with
explanations/reasons for their being
outstanding, to the appropriate department
of the SES in such frequency and within the
deadline set in Appendix 6.
The reconciliation statement shall be
made available to any authorized bank
examiner for inspection/examination
without need of advance notice.
A copy of the year-end reconciliation
statement covering transactions between the
banks head office and all its branches shall
be furnished the said department not later
than the end of January of the following year.
Part I - Page 91
X162.7 - X162.9
07.12.31
X162.7 List of stockholders and

their stockholdings
a. Banks shall submit to the
appropriate department of the SES
annually a complete list of stockholders
and their stockholdings in the prescribed
form within the deadline indicated in
Appendix 6.
b. Any change in the list shall also be
reported to the said department in such
frequency and within the deadline
indicated in Appendix 6, indicating the
name(s) and/or stockholdings involved
which is/are to be cancelled or replaced,
and the new name(s) and/or stockholdings
which shall be included for that quarter.
In case no change occurred during a
particular quarter, the report shall provide
a notation, viz no change(s) since last
report submitted for quarter ended,
_________ _____, 20_ _.
X162.8 Bangko Sentral offices,
where reports are submitted. Submission
of BSP periodic or call reports shall be as
follows:
a. All banking offices shall submit
the required reports in accordance with
Appendix 6 to the BSP, Manila or to the
nearest BSP Regional Offices: Provided,
That the head office of a bank may submit
to the SDC in electronic form the batched
copy of all its banking units Quarterly
Statement of Condition and Statement of
Income and Expenses by Banking Unit
in behalf of its branches and other
offices;
b. Where a particular report form calls
for distribution of copies to other
departments of the BSP, the bank
concerned shall furnish said copies of the
report direct to the respective departments
of the BSP; and
c. As an exception to Item a above,
the duplicate copy of the bio-data for
directors/officers shall be submitted to the
SDC of the BSP.
Part I - Page 92
X162.9 Publication/Posting of
balance sheet
a. UBs/KBs, TBs, RBs and Coop Banks
with resources of P1.0 billion and above
(1) Banks belonging to this category
shall accomplish the prescribed form and
publish their quarterly Balance Sheet (BS)
as of the cut-off date indicated in the call
letter issued by the SES.
The Consolidated Balance Sheet (CBS)
of a bank and its subsidiaries and affiliates
shall be published side by side with the BS of
its head office and its branches/other offices.
(2) The CBS of the bank and its
subsidiaries and affiliates shall be prepared
in accordance with the rules of
consolidation provided under the Financial
Reporting Package (FRP), in which case,
only financial allied subsidiaries, except
subsidiary insurance companies, shall be
consolidated on a line-by-line basis, while
non-financial allied subsidiaries including
subsidiary insurance companies shall be
(3) Such BS, and CBS where applicable,
shall be published in a newspaper of general
circulation in the city/province where the
principal office, in the case of a domestic
bank, or the principal branch/office, in the
case of a foreign bank, is located, but if no
newspaper is published in the same
province, then in a newspaper published in
Metro Manila or in the nearest city/province.
(4) The names and position/
designation of the members of the board
of directors, president and executive vice
presidents (senior vice presidents, if there
are no executive vice presidents), shall be
published and shown in the right side
column of the published BS as of June of
every year.
(5) (a) Before publication, a soft copy
of the BS shall be submitted to the SDC
within twelve (12) banking days from the
date of the call letter.
Further, a hard copy of the control proof
list for the said report shall likewise be
X162.9
07.12.31
submitted to the SDC within the said

deadline.
(b) Banks that are incapable of
submitting the BS in electronic form shall
submit the same in hard copy to the SDC
within the said deadline.
(c) The published BS with the
publishers certificate shall be submitted
within twenty (20) banking days after the
date of said call letter to the SDC.
b. TBs/RBs/Coop Banks with resources
of less than P1 billion
(1) A TB, RB and Coop Bank belonging
to this category shall either publish its
quarterly BS as of the cut-off date indicated
in the call letter issued by the SES of the
BSP, in a newspaper of general circulation
as in Item a(3) above or post the same in
the most conspicuous area of its premises,
in the municipal building, municipal public
market, barangay hall and barangay public
market where the head office and all its
branches are located. The posting shall be
printed on 12x18 white paper, preferably
white buff paper (cartolina) and shall be
made within twenty (20) banking days from
the end of the reference quarter and for a
period of thirty (30) successive calendar
days.
(2) (a) A TB, RB and Coop Bank that
shall publish/post its quarterly BS shall
submit a soft copy of the same to the SDC
within twenty (20) banking days after the
end of the reference quarter.
(b) Banks that are incapable of
submitting the BS in electronic form shall
submit the same in hard copy to the SDC
(c) In either case, an affidavit executed
by the president, or in his absence, the vicepresident or manager, as the case may be,
shall likewise be submitted to the SDC
c. Additional information required
Banks shall disclose the following
information in the quarterly published/
posted BS:
(1) Solo BS (Head Office and Branches/

Other Offices)
(a) Non-performing loans (NPLs)
(b) Ratio of NPLs to total loan portfolio
(TLP)
(c) Classified loans and other risk
assets
(d) Specific provision for loan losses
(e) Return on equity (ROE)
(f) DOSRI loans and receivables
(g) Ratio of DOSRI loans and
receivables to TLP
(h) Past due DOSRI loans and
receivables
(i) Ratio of past due DOSRI loans and
receivables to TLP
(j) Percent compliance with Magna
Carta 6% for Small Enterprise
(k) Percent compliance with Magna
Carta 2% for Medium Enterprise
(l) CAR on Solo Basis under Appendix
63b for UBs/KBs, TBs, and RBs that are
subsidiaries of UBs/KBs. For stand-alone
TBs, RBs and Coop Banks, Sec. X116 shall
apply.
(i) Total CAR
(ii) Tier 1 CAR
(2) CBS (parent bank and financial
allied subsidiaries excluding subsidiary
insurance companies)
(a) List of financial allied subsidiaries
(excluding subsidiary insurance
companies)
(b) List of subsidiary insurance
companies
(c) CAR on consolidated basis
(i) Total CAR
(ii) Tier 1 CAR
For purposes of additional information,
all amounts and ratios shall be as of the same
call date. However, the basis for computing
the ROE shall be the latest quarter
immediately preceding the call date using
the following formula:
Return on Average Equity (%) =
Net Income (or Loss) after Income Tax X 100
Average Total Capital Accounts
Part I - Page 93
X162.9 - X162.12
07.12.31
Where net income/(loss) after tax and

average total capital accounts shall be:
Net Income
After Tax
Quarter (loss) (NIAT)
March Quarter end
NIAT
multiplied by 4.
June
Semester end
NIAT
multiplied by 2.
Sept.
Nine (9) mos.
NIAT
multiplied by
1.33333.
Dec.
Year end
NIAT
Average Total Capital
Accounts
Sum of end-month capital
accounts (December March) divided by 4.
accounts (December June) divided by 7.
accounts (December September) divided by10.
accounts (December December) divided by 13.
d. Deferment of publication requirement.

The abovementioned publication
requirement may be deferred by the
Monetary Board by at least five (5)
affirmative votes upon application by the
bank concerned during periods of national
and/or local emergency or of imminent
panic which directly threaten monetary and
banking stability.
The amended prescribed form for the
published BS shall be used starting with the
quarter-end September 2007 reports.
(As amended by Circular No. 576 dated 08 August 2007)
X162.10 Consolidated financial

statements of banks and their subsidiaries
engaged in financial allied undertakings
Banks shall submit after the end of the
calendar year or the end of the fiscal year
adopted by the bank their consolidated
financial statements and supported by the
individual annual financial statements of
their subsidiaries engaged in financial allied
undertakings.
consolidated financial statements shall
conform to the guidelines of PAS 27
Consolidated and Separate Financial
Statements except that for purposes of
consolidated financial statements, the
provisions of Subsec. X161.2a shall apply.
Part I - Page 94
The consolidated financial statements

and the supporting individual financial
statements of their subsidiaries shall be
of the SES within the deadline indicated in
Appendix 6.
X162.11 Reports of other banking
offices. Extension offices of banks which
maintain separate books of accounts shall
be subject to all reporting requirements of
a regular branch.
An extension office whose record of
transactions/accounts is consolidated daily
with its mother unit shall submit only the
Selected Financial Accounts form as listed
in Appendix 6.
Convenience Banking Centers (CBCs)
are not required by BSP to submit
Statement of Condition (SOC) and
Statement of Income and Expenses (SIE).
A CBC is not considered as a branch but
as an extension office of a bank without
separate books of accounts which directly
reports its transactions to its mother branch.
X162.12 Reports required of foreign
subsidiaries/affiliates/banking offices or
non-bank entities of domestic banks. The
submission of periodic reports of a foreign
subsidiary/affiliate/banking offices or nonbank entities of domestic banks shall be
governed by the following rules:
a. For foreign subsidiaries/affiliates
of domestic banks, the local investorbank(s) concerned shall regularly submit
a quarterly statement of condition and
quarterly/annual report of income and
expenses concerning the operations of
the foreign subsidiaries/affiliates,
including such other periodic reports
which may be required from time to time
in the forms prescribed by the BSP for
domestic financial intermediaries to the
extent that their operations are
applicable;
X162.12 - 1162.13
05.12.31
b. For foreign subsidiaries/affiliates of

domestic banks, the appropriate department
of the SES shall be furnished by said domestic
banks copies of the annual report prescribed
by any of the supervisory/regulatory
authorities in the country of operations;
c. When material changes noted in
the annual financial statements warrant an
interim comprehensive evaluation, the
foreign affiliate concerned shall be
requested to submit to the appropriate
department of the SES, through its domestic
investor-bank, copies of its quarter/interim
reports to stockholders or the call reports
in the case of U.S. banks;
d. Audited financial statements (AFS)
of the foreign banking offices and
subsidiaries; and
e. Examination reports done by the
foreign bank supervisory authority.
The submission of the documents in
Items d and e to BSP shall not be later
than thirty (30) banking days from date of
submission/release of said reports to the
foreign banking offices and subsidiaries of
Philippine banks. Material findings, if any,
contained in said reports should be
highlighted.
f. For purposes of this Subsection,
affiliate shall refer to an entity linked directly
or indirectly to a bank by means of:
(1) Ownership, control or power to
vote, of ten percent (10%) or more of the
outstanding voting stock of the entity, or
vice-versa;
(2) Interlocking directorship or
officership, except in cases involving
independent directors as defined under
existing regulations;
(3) Common stockholders owning ten
percent (10%) or more of the outstanding
voting stock of each financial intermediary
and the entity;
(4) Management contract or any
arrangement granting power to the bank to
direct or cause the direction of management
and policies of the entity, or vice-versa; and
(5) Permanent proxy or voting trusts in

favor of the bank constituting ten percent
(10%) or more of the outstanding voting
stock of the entity, or vice-versa.
For purposes of this Manual, the above
definition of affiliate shall be adopted except
where the provision of the regulation
expressly states otherwise.
X162.13 (Reserved)
1162.13 Additional reports from
UBs/KBs
a. Volume and weighted average
interest rates of deposits and loans. Data
on the volume of transactions and
weighted average interest rates of
certificates of time deposits and secured/
unsecured loans granted, classified by
maturity, and outstanding savings deposits
classified by interest rates, shall be
prepared daily (except data on savings
deposits which shall be prepared weekly)
and submitted weekly by all head offices
of UBs/KBs to the Department of
Economic Research of the BSP not later
than 4:00 PM on Thursday after end of
reference week.
b. Short-term prime rates. All UBs
and KBs shall submit in the prescribed
form a report on the volume and interest
rates on credit line availments under
short-term prime rates in such frequency
and within the deadline indicated in
Appendix 6.
c. (Deleted by Circular No. 405
dated 28 August 2003).
d. Foreign Exchange Position Report
Banks may be allowed to submit on a
weekly basis the notarized certification
signed by the banks president/CEO/country
manager and the treasurer to cover the daily
hard copies of Schedule 13, FX Form I and
CFXPR pertaining to each day of the week.
Delayed submission of the notarized
certification shall be subject to monetary
penalty, as follows:
Part I - Page 95
1162.13 - X163
07.12.31
Daily Penalty
1 banking day of P6,000.00 (equivalent
delay
P1,200.00 per day for
five (5) report dates covered
by the certification on the
assumption that the five (5)
weekdays of the reference
week are all banking days)
st
2nd banking day of P1,200.00/day

delay and onwards
2162.13 (Reserved)
3162.13 (Reserved)
X162.14 Reports of strikes and
lockouts. Banks through their president or
chief executive officer shall immediately
apprise the Deputy Governor of the SES
of the BSP on the status of strikes/lockouts
involving their banks, if unsettled after
seven (7) calendar days. The bank shall
disclose the following pertinent
information on the strike/lockout:
a. Cause of the strike/lockout and bank
managements position on its legality; and
b. Bank operations affected.
X162.15 Report on the Sworn
Statement on Real Estate/Chattel
Transactions. The Report on the Sworn
Statement on Real Estate/Chattel Transactions
submitted under BSP Form Nos. NP06-KB,
NP06-TB and RB/COB 20 need not be under
the signature of all the members of the banks
board of directors: Provided, That:
(a) transactions reported are being
availed of strictly in accordance with the
terms and conditions of a fringe benefit
program approved by the banks board of
directors and by the BSP; and
(b) the signatory to the certification is
an officer duly authorized by the banks
board of directors.
Part I - Page 96
Transactions not covered under the

banks fringe benefit plan shall still be
reported under the signatures of all the
members of the banks board of
directors.
X162.16 Financial Reporting Package
In line with the adoption of the PFRS and
PAS effective the annual financial reporting
period beginning 01 January 2005, the
Manual of Accounts and the BSP reportorial
requirements consisting of the CSOC,
Consolidated Statement of Income and
Expense (CSIE) and their supporting
schedules are amended through the
issuance of the new FRP for banks.
The general features as well as the
implementing guidelines of the FRP is
provided in Appendix 77.
(Circular 512 dated 03 February 2006 as amended by Circular
568 dated 08 May 2007)
X162.17 X162.20 (Reserved)

K. INTERNAL CONTROL
Sec. X163 Internal Control System. The
following provisions are the minimum
internal control standards for banks to help
promote effective control system.
For this purpose, the following
records/data shall be compiled and made
available for the inspection of BSP
examiners:
a. Records showing compliance with
independent balancing procedures. These
records should indicate the accounts and
the periodic balancing procedures
performed.
b. Statements of actual duties of
persons assigned to handle cash and
securities.
c. All internal control audit reports or
their equivalent.
X163 - X163.3
05.12.31
d. Information/data on the direct and/

or indirect equity holdings and/or
connection with any firm, partnership or
corporation organized for profits, of all the
bank directors, officers and major
stockholders as defined under Subsec.
X326.1 should be maintained.
e. Information/data pertaining to the
electronic data processing (EDP)
department or EDP servicer of the bank
particularly on organization, input controls,
processing controls, output controls,
software controls, program and
documentation standards, logs on the
operation of mainframes and peripherals,
hardware controls and such other EDP
internal control standards prescribed by the
BSP in separate rules and regulations.
X163.1 Proper accounting records
a. All banks shall maintain proper and
adequate accounting records.
b. These records should be kept upto-date and shall contain sufficient detail so
that an audit trail is established.
c. All tickets shall bear official
approval and should be initiated by the
person originating and another person by
checking them.
X163.2 Independent balancing
a. Independent balancing shall mean
that records posted by a person or cash held
by a teller or cashier shall be balanced or
counted by another person.
b. The
following
minimum
independent balancing procedures shall be
adopted.
(1) Monthly reconciliation of general
ledger balances against respective subsidiary
and supporting records and documentation
by someone other than the bookkeeper or
the person handling the records.
(2) Irregular and unannounced count
of tellers cash and checks and other cash
items at least twice a month and vault
cash including Automated Tellering
Machines (ATM) cash dispensers at least

once a month by the auditor/control
officer or by an officer not connected with
cash department.
(3) Monthly reconciliation of due from
banks, cash in bank accounts (domestic and
foreign) and due from/to head office/
branches by someone other than the person
handling the records or posting the general
ledger entries.
(4) Periodic verification of securities
and collaterals by someone other than their
custodian.
(5) Periodic verification of the accuracy
of the interest credits to deposit liabilities
accounts.
X163.3 Division of duties and
responsibilities
a. The duties of all the officers and
employees shall be segregated, clearly
defined, understood, documented and
manualized. No individual shall have
complete authority and responsibility for
handling all phases of any transaction from
beginning to end, without some check or
balance from some other part of the
organization.
b. The physical handling of a
transaction shall be separated from its
recording and supervision as follows:
(1) A person handling cash shall not be
permitted to post the ledger records nor
should posting the general ledger be
performed by an employee who posts the
depositors subsidiary ledgers;
(2) A lending officer shall never be
allowed to disburse proceeds of notes,
accept note payment nor post loan
ledgers;
(3) The functions of issuing, recording
and signing of drafts/checks shall be
separated;
(4) Checks and other cash items shall
be maintained either by an employee not
handling cash or by the Rack/Distributing
Department provided that adequate control
Part I - Page 96a
X163.3 - X163.4
05.12.31
as to custody and disposition of funds are

properly maintained;
(5) The receipt of statements from
depository bank shall be assigned to an
employee other than the one connected
with the preparation, recording and signing
of bank drafts;
(6) Custodians of securities shall not be
allowed to handle security transactions;
(7) Collateral appraisal shall be done by
an employee/officer who does not approve
loans;
(8) Incoming checks and other cash
items shall be recorded chronologically in
a register by an employee other than the
bookkeeper before they are forwarded for
posting purposes;
(9) Credit reports shall be obtained by
someone other than lending officers ;
(10)Mailing of customers statements
and delinquent notices shall be done by an
employee other than the one who granted
the loan or the one handling the records; and
(11)Dispatching and delivery of current

account statements shall be done by
someone who is not involved in current
account operations.
c. Extensive background checking of
persons intended to be assigned to handle
cash and securities shall be conducted.
Frequent follow-up checking after their
employment shall also be made.
X163.4 Joint custody
a. Joint custody shall mean the
processing of transactions in the presence
of and under the direct observation of a
second person. Both persons shall be equally
accountable for the physical protection of the
items and records involved.
b. Physical protection shall be deemed
established through the use of two (2) locks
or combinations on a file chest or vault
compartment.
c. Two (2) or more persons shall be
assigned to each half of the control so that
Part I - Page 96b
X163.4 - X163.6
05.12.31
operating efficiency is not impaired if one

(1) person is not immediately available.
d. Persons who are related to each
other within the third degree of
consanguinity or affinity shall not be made
joint custodians.
e. The following shall be under joint
custody:
(1) Cash in vault and in ATM cash
dispensers;
(2) All accountable forms;
(3) Collaterals;
(4) Securities;
(5) Documents of title and/or
ownership of properties or fixed assets;
(6) Dormant or inactive deposit
ledgers/EDP print-outs and corresponding
signature cards including on-line posting of
dormant/inactive accounts;
(7) Import documents;
(8) Trust receipts;
(9) Collection items;
(10) Duplicate keys, safe deposit spare
locks and keys, and keys to unrented safe
deposit boxes;
(11) Safekeeping items;
(12) Vault door and safe combinations;
(13) Unissued specimen signature
books;
(14) Correspondents and banks own
telegraphic and/or electronic fund transfer
system or cable test keys currently in use;
(15) Test key fixed numbers unissued;
(16) Unissued and captured ATM cards
and similar devices;
(17) Access locks and keys to on-line
EDP terminals and similar devices; and
(18) Access locks and keys to EDP
mainframes and peripherals.
X163.5 Signing authorities. Signing
authorities for the different levels of officers
to sign for and in behalf of the banks shall
be approved by the board of directors and
the extent of each level of authority shall
be clearly defined. These signing authorities
shall include but need not be limited to the
following:
a. Lending;
b. Investment;
c. Approval of expense;
d. Various supervisory reports; and
e. Bank drafts, managers/cashiers
checks, bank money orders and certificates
of time deposit.
X163.6 Dual control
a. Dual control shall mean the work
of one (1) person is to be verified by a second
person to ensure that the transaction is
properly authorized, recorded and settled.
b. The routine and completion of each
transaction shall involve at least two (2) or
more individuals.
c. Except as herein provided, the
following accounts/transactions shall be
under dual control:
(1) Cashier's/manager's checks,
telegraphic transfers (TTs) and electronic
fund transfer system (EFTS) - The signature
of at least two (2) officers should be required
in the issuance of cashiers/managers
checks and payment orders (incoming and
outgoing) of TTs and EFTS. The board of
directors may, however, prescribe a
predetermined amount by which one (1)
senior officer can sign checks or payment
orders, subject to appropriate control
measures.
(2) Certificates of Time Deposit - The
board of directors of a bank is given the
discretion to determine the number of
signatories for the issuance of certificates
of time deposit (CTDs).
For this purpose, all banks shall submit
to the appropriate SED of the BSP their
respective internal control measures for
the issuance of CTDs, the minimum of
which shall include the following
activities:
(a) Joint custody of unissued CTD
forms;
(b) Accounting for all issued/cancelled
CTDs;
(c) Signature requirement for the
issuance of CTDs;
Part I - Page 97
X163.6 - X163.10
05.12.31
(d) Counterchecking of issued CTDs

against the tellers proofsheets/validated
slips; and
(e) Recording of CTD transactions.
Any change in the internal control
measures shall be submitted to the
appropriate SED of the BSP not later than
thirty (30) days prior to the
implementation. For newly established
banks, the requirement shall be submitted
not later than a month from the start of
banking operations.
(3) Bank Drafts - The signature of two
(2) authorized officers should be required
in the issuance of bank draft.
(4) Borrowings - The signature of at least
two (2) authorized officers should be
required.
(5) All transactions giving rise to Due
to or Due from accounts and all instruments
of remittances evidencing these transactions
particularly those involving substantial
amounts should be approved by two (2)
authorized officers.
(11) Loan accounts;

(12) Expense vouchers;
(13) Payment orders (incoming and
outgoing ) of TTs and EFTS;
(14) Transfer requests through EFTS
involving banks accounts abroad;
(15) EDP batch transmittal slips of
documents; and
(16) Due to/from head office/branches
tickets.
X163.7 Number control

a. Sequence number controls shall be
incorporated in the accounting system and
should be used in registering notes, in
issuing official checks and in other similar
situations. Bank management shall
designate a person who is detached from
the banking operations involved to monitor
said sequence number controls.
b. The following are the forms,
instruments and accounts that shall be
number-controlled:
(1) Bank drafts;
(2) Managers and cashiers checks;
(3) Promissory notes;
(4) Savings deposit accounts;
(5) Demand deposit accounts;
(6) CTDs;
(7) Letters of credit;
(8) Collection items;
(9) Official and provisional receipts;
(10) Certificates of stocks;
X163.9 Independence of the internal

auditor
a. The by-laws shall provide for the
position of internal auditor together with the
duties and responsibilities, scope and
objectives of internal auditing.
b. The internal auditor shall report
directly to the board of directors or to an
audit committee composed of directors
who do not hold executive positions in
the bank.
c. The internal auditor shall not install
nor develop procedures, prepare records or
engage in other activities which he normally
reviews or appraises.
Part I - Page 98
X163.8 Rotation of duties

a. The duties of personnel handling
cash, securities and bookkeeping records
shall be rotated.
b. Rotation assignment shall be
irregular, unannounced and long enough
to permit disclosure of any irregularities or
manipulations.
c. Tellers/cashiers
shall
be
temporarily relieved of their duties during
the actual count of their cash
accountabilities by BSP examiners or by
internal/external auditors.
X163.10 Confirmation of accounts

At least once a year, the internal auditing
staff shall confirm by direct verification with
bank clients, the following:
a. Balances of loans and credit
accommodations of borrowers;
163.10 - X163.12
05.12.31
b. Deposit account balances

particularly new deposit accounts, inactive
or dormant accounts and closed accounts;
c. Outstanding balances of borrowings
and other liabilities; and
d. Outstanding
balances
of
receivables/payables.
X163.11 Other internal control
standards
a. Deposit accounts
(1) Entries to dormant account ledgers
shall be verified and approved by a
designated officer. His initials shall be
placed next to the entry on the ledger sheet.
(2) Dormant accounts shall be
segregated from active account ledgers with
a separate subsidiary control.
(3) Signature cards for dormant
accounts shall be removed from active files.
(4) All new current accounts shall be
approved by a designated officer.
(5) Signature cards and deposit ledger
sheets shall be authenticated by some form
of validation. Subsequent changes shall
also be validated.
(6) Signature cards and deposit ledger
sheets shall be accessible only to authorized
persons.
(7) Deposit tickets shall be
occasionally examined at irregular intervals
to determine that postings are made on the
actual date deposits are received.
(8) Checks shall be cancelled as soon
as they have been paid and posted.
(9) Reports on closed accounts and
returned checks shall be prepared daily.
(10) All current account statements
shall be mailed or sent electronically via
electronic mail (e-mail), or such other
electronic means direct to depositors:
Provided, That banks using the electronic
means of sending the current account
statements shall have prior BSP-approved
internet banking service and shall strictly
observe the required retention of
electronic data messages or electronic
documents under Section 13 of R.A. No.

8792, otherwise known as the Electronic
Commerce Act.
Undelivered statements shall be
retained by an organizational unit not
responsible for demand deposit account
processing.
(11) An officer shall be designated to
attend to customers who report differences
on their statements.
(12) Checkbooks shall be issued only
against requisition forms signed by an
authorized signatory to the account.
(13) Banks shall adopt a system to
establish the identity of their depositors.
b. Miscellaneous
(1) Loan applications and related
documents shall be verified to ensure their
authenticity particularly the name,
residence, employment and current
reputation of the borrower.
(2) Tellers paying checks to strangers
shall obtain positive identification of the
person and the account on which the checks
are drawn should be verified.
(3) No employee shall be permitted to
process transaction affecting his own
account.
(4) Tellers and other employees having
contact with customers shall be prohibited
from preparing deposit ticket, withdrawal
slip or other forms for the customer.
(5) All banks shall have a sound
recruitment policy.
(6) In the case of TBs, all accountable
officers and employees shall be bonded.
X163.12 Internal control procedures
for dormant/inactive accounts
a. Definition of dormant or inactive
accounts
(1) Current or checking accounts
showing no activity (deposit or withdrawals)
for a period of one (1) year.
(2) Savings account showing no activity
(deposit or withdrawals) for a period of two
(2) years.
Part I - Page 99
X163.12 - X164.2
05.12.31
b. Procedures for classification. Banks

shall review and segregate dormant
accounts as herein defined at least once in
every semester.
c. Internal control measures
(1) As a matter of policy, banks shall
exert all efforts to prevent checking and
savings accounts from becoming dormant.
When it becomes apparent that an
account is inactive, a short letter should
be sent to the depositor encouraging him
to use his account.
In case of checking accounts, the
banks shall ensure that the monthly
statement of accounts reach the
depositors. If the depositors cannot be
located, the following steps should be
undertaken:
(a) Check any significant changes or
fluctuations in the depositors account
balances over a period of time with
emphasis on accounts with decreasing
balances;
(b) Verify apparent reactivation entries,
represented either by deposit or withdrawal,
that appears to have prevented the account
from being classified as dormant; and
(c) Investigate any obvious alteration of
the ledger records.
(2) Segregated dormant accounts shall
be placed under joint custody of two (2)
responsible officers/employees.
(3) A separate ledger control for
dormant accounts shall be maintained.
(4) Signature cards for dormant
accounts shall also be segregated from active
files and held under joint custody.
(5) Entries to dormant account
ledgers shall be verified and approved by
a designated officer. His initials shall be
placed next to the entry on the ledger
sheet.
(6) All inquiries on dormant accounts
shall be coursed to one officer who should
obtain sufficient identification from the
inquirer to assure that he is entitled to the
information.
Part I - Page 100
(7) A trial balance of dormant account

ledgers shall be taken periodically and
balances with the general control account
by an employee other than the bookkeeper.
(8) Dormant or inactive accounts shall
be verified directly with depositors.
(9) All transactions affecting dormant
accounts shall be subject to audit by the
internal auditor.
(10) A semestral report on deposit
accounts transferred to dormant shall be
rendered to bank management.
Sec. X164. Internal Audit Function. Internal
audit is an independent, objective assurance
and consulting function established to
examine, evaluate and improve the
effectiveness of risk management, internal
control, and governance processes of an
organization.
X164.1 Status. The internal audit
function must be independent of the
activities audited and from day-to-day
internal control process. It must be free to
report audit results, findings, opinions,
appraisals and other information to the
appropriate level of management. It shall
have authority to directly access and
communicate with any officer or employee,
to examine any activity or entity of the
institution, as well as to access any records,
files or data whenever relevant to the
exercise of its assignment. The Audit
Committee or senior management should
take all necessary measures to provide the
appropriate resources and staffing that
would enable internal audit to achieve its
objectives.
X164.2 Scope. The scope of
internal audit shall include:
a. Examination and evaluation of the
adequacy and effectiveness of the internal
control systems;
b. Review of the application and
effectiveness of risk management
X164.2 - X164.4
05.12.31
procedures and risk assessment

methodologies;
c. Review of the management and
financial information systems, including the
electronic information system and
electronic banking services;
d. Assessment of the accuracy and
reliability of the accounting system and of
the resulting financial reports;
e. Review of the systems and
procedures of safeguarding assets;
f. Review of the system of assessing
capital in relation to the estimate of
organizational risk;
g. Transaction
testing
and
assessment of specific internal control
procedures; and
h. Review of the compliance system
and the implementation of established
policies and procedures.
X164.3 Qualification standards of
the internal auditor. The internal auditor
of a UB or a KB must be a Certified Public
Accountant (CPA) and must have at least
five (5) years experience in the regular
audit (internal or external) of a UB or KB
as auditor-in-charge, senior auditor or
audit manager. He must possess the
knowledge,
skills,
and
other
competencies to examine all areas in
which the institution operates.
Professional competence as well as
continuing training and education shall
be required to face up to the increasing
complexity and diversity of the
institutions operations.
The internal auditor of a TB,QB, trust
entity or national coop bank must be a CPA
with at least five (5) years experience in
the regular audit (internal or external) of a
TB, QB, trust entity or national coop bank
as auditor-in-charge, senior auditor or audit
manager or, in lieu thereof, at least three
(3) years experience in the regular audit
(internal or external) of a UB or KB as
auditor-in-charge, senior auditor or audit

manager.
The internal auditor of an RB, NSSLA
or local coop bank must be at least an
accounting graduate with two (2) years
experience in external audit or in the
regular audit of an RB, NSSLA or local
coop bank or, in lieu thereof, at least one
(1) year experience in the regular audit
(internal or external) of a UB, KB, TB,
QB, trust entity or national coop bank as
auditor-in-charge, senior auditor or audit
manager.
A qualified internal auditor of a UB
or a KB shall be qualified to audit TBs,
QBs, trust entities, national coop banks,
RBs, NSSLAs, local coop banks,
subsidiaries and affiliates engaged in
allied activities, and other financial
institutions under BSP supervision.
A qualified internal auditor of a TB
or national coop bank shall likewise be
qualified to audit QBs, trust entities, RBs,
NSSLAs, local coop banks, subsidiaries
and affiliates engaged in allied activities,
and other financial institutions under BSP
supervision.
X164.4 Code of Ethics and Internal
Auditing Standards. The internal auditor
should conform with the Code of
Professional Ethics for CPAs and ensure
compliance with sound internal auditing
standards, such as the Institute of Internal
Auditors International Standards for the
Professional Practice of Internal Auditing
(e-mail: standards@theiia.org; Web: http:/
/www.theiia.org.) and other supplemental
standards issued by regulatory authorities/
government agencies. The Standards
address independence and objectivity,
professional proficiency, scope of work,
performance of audit work, management
of internal audit, quality assurance
reviews, communication and monitoring
of results.
Part I - Page 101
X165 - X166
06.12.31
L. MISCELLANEOUS PROVISIONS
Sec. X165 Selection, Appointment and
Reporting Requirements for External
Auditors; Sanction; Effectivity. Under
Section 58, R.A. No. 8791, the Monetary
Board may require a bank to engage the
services of an independent auditor to be
chosen by the bank concerned from a list
of CPAs acceptable to the Monetary
Board.
It is the policy of the BSP to promote
high ethical and professional standards in
public accounting practice and to
encourage coordination and sharing of
information between external auditors and
regulatory authorities of banks, QBs, trust
entities and/or NSSLAs to ensure effective
audit and supervision of these institutions
and to avoid unnecessary duplication of
efforts. In furtherance of this policy and to
ensure that reliance by regulatory
authorities and the public on the opinion
of external auditors is well placed, the BSP
hereby prescribes the rules and regulations
that shall govern the selection,
appointment, reporting requirements and
delisting for external auditors of banks,
QBs, trust entities, NSSLAs, their
subsidiaries and affiliates engaged in
allied activities and other FIs which
under special laws are subject to BSP
supervision.
The selection of external auditors shall
be valid for a period of three (3) years. BSP
selected external auditors shall apply for
the renewal of their selection every three
(3) years. The provisions of Items A and
B of Appendix 43 shall likewise apply for
each application for renewal.
The SES shall make an annual
assessment of the performance of external
auditors and will recommend deletion
from the list even prior to the three (3)-year
renewal period, if based on assessment,
the external auditors report did not comply
with BSP requirements.
Part I - Page 102
External auditors who meet the

requirements specified in this Section shall
be included in the list of BSP selected
external auditors. In case of partnership,
inclusion in the list of BSP selected external
auditors shall apply to the audit firm only
and not to the individual signing partners
or auditors under its employment.
The BSP will circularize to all banks,
QBs, trust entities and NSSLAs the list of
selected external auditors once a year. The
BSP, however, shall not be liable for any
damage or loss that may arise from its
selection of the external auditors to be
engaged by banks, QBs, trust entities or
NSSLAs for regular audit or special
engagements.
a. Rules and regulations. The rules
and regulations to govern the selection and
delisting by the BSP of external auditors of
banks and their subsidiaries and affiliates
engaged in allied activities are shown in
Appendix 43.
b. Sanctions. The applicable
sanctions/penalties prescribed under
Sections 36 and 37 of R.A. No. 7653 to the
extent applicable shall be imposed on the
bank, its audit committee and the directors
approving the hiring of external auditors
who are not in the BSP list of selected
auditors for banks, QBs, trust entities,
NSSLAs or for hiring, and/or retaining the
services of the external auditor in violation
of any of the provisions of this Section and
for non-compliance with the Monetary
Board directive under Item l in Appendix
43. Erring external auditors may also be
reported by the BSP to the PRC for
appropriate disciplinary action.
(As amended by Circular No. 529 dated 11 May 2006
Sec. X166 Audited Financial Statements

of Banks. The following rules shall govern
the utilization and submission of AFS of
banks.
For purposes of this Section, AFS shall
include the balance sheets, income
X166 - X166.1
06.12.31
statements, statements of changes in

equity, statements of cash flows and notes
to financial statements which shall include
among other information, disclosure of the
volume of past due loans as well as loanloss provisions. On the other hand,
financial audit report shall refer to the AFS
and the opinion of the auditor. The AFS of
banks with subsidiaries shall be presented
side by side on a solo basis (parent) and on
a consolidated basis (parent and
subsidiaries).
X166.1 Financial audit. Banks shall

cause an annual financial audit by an
external auditor acceptable to the BSP not
later than thirty (30) calendar days after the
close of the calendar year or the fiscal year
adopted by the bank. Report of such audit
shall be submitted to the board of directors
or country head, in the case of foreign bank
branches, and the appropriate department
of the SES not later than 120 calendar days
after the close of the calendar year or the
fiscal year adopted by the bank. The report
to the BSP shall be accompanied by the:
(1) certification by the external auditor on
the: (a) dates of start and termination of
audit; (b) date of submission of the financial
audit report and certification under oath
stating that no material weakness or breach
in the internal control and risk
management systems was noted in the
course of the audit of the bank to the board
of directors or country head; and (c) the
absence of any direct or indirect financial
interest and other circumstances that may
impair the independence of the external
auditor; (2) Reconciliation Statement
between the AFS and the balance sheet
and income statement for bank proper
(regular and FCDU) and trust department
submitted to the BSP including copies of
adjusting entries on the reconciling items;
and (3) other information that may be
required by the BSP.
In addition, the external auditor shall

be required by the bank to submit to the
board of directors or country head, a LOC
indicating any material weakness or breach
in the institutions internal control and risk
management systems within thirty (30)
calendar days after submission of the
financial audit report. If no material
weakness or breach is noted to warrant the
issuance of an LOC, a certification under
oath stating that no material weakness or
breach in the internal control and risk
management systems was noted in the
course of the audit of the bank shall be
submitted in its stead, together with the
financial audit report.
Material weakness shall be defined as
a significant control deficiency, or
combination of deficiencies, that results in
more than a remote likelihood that a
material misstatement of the financial
statements will not be detected or prevented
by the entitys internal control. A material
weakness does not mean that a material
misstatement has occurred or will occur,
but that it could occur. A control deficiency
exists when the design or operation of a
control does not allow management or
employees, in the normal course of
performing their assigned functions, to
prevent or detect misstatements on a timely
basis. A significant deficiency is a control
deficiency, or combination of control
deficiencies, that adversely affects the
entitys ability to initiate, authorize, record,
process, or report financial data reliably in
accordance with generally accepted
accounting principles. The phrase more
than remote likelihood shall mean that
future events are likely to occur or are
reasonably possible to occur.
The board of directors, in a regular or
special meeting, shall consider and act on
the financial audit report and the
certification under oath submitted in lieu
of the LOC and shall submit, within thirty
(30) banking days after receipt of the
Part I - Page 103
X166.1
06.12.31
reports, a copy of its resolution to the

resolution shall show, among other things,
the actions(s) taken on the reports and the
names of the directors present and absent.
The board shall likewise consider and
act on the LOC and shall submit, within
thirty (30) banking days after receipt thereof,
a copy of its resolution together with said
LOC to the appropriate department of the
SES. The resolution shall show the action(s)
taken on the findings and recommendations
and, the names of the directors present and
absent, among other things.
The country head of foreign banks with
branches in the Philippines shall submit a
report on the action taken by management
(head office, regional, or country, as the
case may be) on the financial audit report
and the certification under oath submitted
in lieu of the LOC within thirty (30) banking
days after receipt thereof.
The country head shall likewise submit
a report on the action taken by management
on the LOC within thirty (30) banking days
after receipt thereof.
The LOC shall be accompanied by the
certification of the external auditor of the
date of its submission to the board of
directors or country head, as the case may be.
Government-owned or-controlled
banks, including their subsidiaries and
affiliates, as well as other financial
institutions under BSP supervision which
are under the concurrent jurisdiction of the
Commission on Audit (COA) shall be
exempt from the aforementioned annual
financial audit by an acceptable external
auditor: Provided, That when warranted by
supervisory concern such as material
weakness/breach in internal control and/or
risk management systems, the Monetary
Board may, upon recommendation of the
appropriate department of the SES, require
the financial audit to be conducted by an
external auditor acceptable to the BSP, at
the expense of the institution concerned:
Part I - Page 104
Provided, further, That when circumstances

such as, but not limited to loans from
multilateral financial institutions,
privatization, or public listing warrant, the
financial audit of the institution concerned
by an acceptable external auditor may also
be allowed.
Banks and other financial institutions
under the concurrent jurisdiction of the BSP
and COA shall, however, submit a copy of
the annual audit report (AAR) of the COA
within thirty (30) banking days after receipt
of the report by the board of directors. The
AAR shall be accompanied by the: (1)
certification by the institution concerned
on the date of receipt of the AAR by the
board of directors; (2) reconciliation
statement between the AFS in the AAR and
the balance sheet and income statement
of bank proper (regular and FCDU) and
trust department submitted to the BSP,
including copies of adjusting entries on the
reconciling items; and (3) other information
that may be required by the BSP.
The board of directors of said
institutions, in a regular or special meeting,
shall consider and act on the AAR, as well
as on the comments and observations and
shall submit, within thirty (30) banking days
after receipt of the report, a copy of its
resolution to the appropriate department
of the SES. The resolution shall show the
action(s) taken on the report, including on
the comments and observations and the
names of the directors present and absent,
among other things.
The financial audit report required to
be submitted shall in all respect be PFRS/
PAS compliant: Provided, That banks shall
submit to the BSP adjusting entries
reconciling the balances in the financial
statements for prudential reporting with that
in the audited annual financial statements.
Banks as well as external auditors shall
strictly observe the requirements in the
submission of the financial audit report and
X166.1 - X166.4
06.12.31
reports required to be submitted under

Appendix 61.
The reports and certifications of
institutions concerned, schedules and
attachments required under this Subsec.
shall be considered Category B
reports, delayed submission of which
shall be subject to the penalties under
Subsec. X162.2b(1)b.
(As amended by Circular Nos. 554 dated 22 December 2006
and 540 dated 09 August 2006)
X166.2 Posting of audited financial

statements. Local banks shall post in
conspicuous places in their head offices,
all their branches and other banking offices,
as well as in their respective websites,
their latest financial audit report.
The abovementioned documents shall
also be posted by foreign bank branches
in all their banking offices in the
Philippines.
X166.3 Disclosure of external

auditors adverse findings to the Bangko
Sentral; sanction
a. Findings to be disclosed. Banks
shall require their external auditors to
report to the BSP any matter adversely
affecting the condition or soundness of the
bank, such as, but not limited to:
(1) Any serious irregularity, including
those involving fraud or dishonesty, that
may jeopardize the interest of depositors
and creditors;
(2) Losses incurred which substantially
reduce the capital funds of the bank; and
(3) Inability of the auditor to confirm
that the claims of creditors are still covered
by the banks assets.
The disclosure of information by the
external auditor to the BSP shall not be a
ground for civil, criminal or disciplinary
proceedings against the former.
Bank management shall be present
during discussions or at least be informed
of the adverse findings in order to preserve

the concerns of the supervisory authority
and external auditors regarding the
confidentiality of information.
b. Sanction. The auditing firm(s)
shall be blacklisted by the Monetary
Board for a period as the Board may
deem appropriate for their failure to
perform their duty of reporting to the BSP
any matter adversely affecting the
condition or soundness of the bank.
Banks shall not be allowed to engage
the services of the blacklisted auditing
firm.
X166.4 Disclosure requirement in
the notes to the audited financial
statements. Banks shall require their
external auditors to include the following
additional information in the notes to
financial statements:
a. Basic quantitative indicators of
financial performance such as return on
average equity, return on average assets
and net interest margin;
For purposes of computing the
indicators, the following formulas shall be
used:
(1)
Return on Average Equity (%) =

Net Income (or Loss) after Income Tax x 100
Average Total Capital Accounts
Where:
Average Total = Sum of Total Capital Accounts as of the 12
Capital
month-ends in the calendar/fiscal year
Accounts
adopted by the Bank
12
(2) Return on Average Assets (%) =
Net Income (or Loss) after Income Tax x 100
Average Total Assets
Where:
Average = Sum of Total Assets as of the 12 month-ends in
Total
the calendar/fiscal year adopted by the Bank
Assets
12
(3) Net Interest =
Margin (%)
Net Interest Income x 100

Average Interest Earning Assets
Where:
Net
= Total Interest Income Total Interest Expense
Interest
Income
Part I - Page 105
X166.4 - X166.6
06.12.31
Average =
Interest
Earning
Assets
Sum of Total Interest Earning Assets as of the

12 month-ends in the calendar/fiscal year
adopted by the Bank
12
b. Risk-based capital adequacy ratio

under Section 34 of R.A. No. 8791/Sec. X116;
c. Concentration of credit as to
industry/economic sector where
concentration is said to exist when total
loan exposures to a particular industry/
economic sector exceeds thirty percent
(30%) of total loan portfolio;
d. Breakdown of total loans as to
secured and unsecured and breakdown of
secured loans as to type of security;
e. Total outstanding loans to banks
DOSRI, percent of DOSRI loans to total
loan portfolio, percent of unsecured
DOSRI loans to total DOSRI loans, percent
of past due DOSRI loans to total DOSRI
loans and percent of non-performing
DOSRI loans to total DOSRI loans;
f. Nature
and
amount
of
contingencies and commitments arising
from off-balance sheet items [include
direct credit substitutes (e.g., export LCs
confirmed, underwritten accounts unsold),
transaction-related contingencies (e.g.,
performance bonds, bid bonds, standby
LCs), short-term self-liquidating traderelated contingencies arising from the
movement of goods (e.g., sight/usance
domestic LCs, sight/usance import LCs),
sale and repurchase agreements not
recognized in the balance sheet; interest
and foreign exchange rate related items;
and other commitments;
g. Provisions and allowances for
losses and how these are determined;
h. Aggregate amount of secured
liabilities and assets pledged as security; and
i. Accounting policies which shall
include, but shall not be limited to, general
accounting principles, changes in
accounting policies/practices, principles of
consolidation, policies and methods for
determining when assets are impaired,
recognizing income on impaired assets
Part I - Page 106
and losses on non-performing credits,

income recognition, valuation policies and
accounting policies on securitizations,
foreign currency translations, loan fees,
premiums and discounts, repurchase
agreements, premises/fixed assets, income
taxes and derivatives.
X166.5 Disclosure requirements in
the annual report. UBs, KBs, and TBs with
at least P1.0 billion resources shall prepare
an annual report which shall include, in
addition to the audited financial statements
and other usual information contained
therein, a discussion and/or analysis of the
following information:
a. Financial performance;
b. Financial position and changes
therein;
c. Overall
risk
management
philosophy (i.e., a general statement of the
risk management policy adopted by the
bank's board of directors which serves as
the basis for the establishment of its risk
management system), risk management
system and structure;
d. Qualitative and quantitative
information on risk exposures (credit,
market, liquidity, operational, legal and
other risks); and
e. Basic business management and
corporate governance information such as
the banks organizational structure, incentive
structure including its remuneration policies,
nature and extent of transactions with
affiliates and related parties.
X166.6 Posting and submission of
annual report. A copy of the latest annual
report shall be posted by the bank in a
conspicuous place in its head office, all its
branches and other offices.
The deadline for the submission of the
annual report to the appropriate
department of the SES is 180 calendar days
after the close of the calendar or fiscal year
adopted by the bank.
X167 - X169.1
08.12.31
Sec. X167 Business Name1

a. UBs/KBs. Only a bank that is
granted universal/commercial banking
authority may represent itself to the public
as such in connection with its business name.
b. TBs. TBs may be allowed to adopt
and use any name: Provided, That the
words A Thrift Bank, A Savings Bank, A
Private Development Bank or A Stock
Savings and Loan Association, as the case
may be, are affixed after its business name.
c. RBs/Coop Banks. RBs/Coop Banks
may adopt a corporate name or use a
business name/style with the word Rural
or Coop, as the case may be. Said banks
may also adopt a name without such words:
Provided, That the identifying phrase, A
Cooperative Bank or A Rural Bank, as the
case may be, is affixed after its business
name: Provided, further, That where the
name of the bank is shown on letterheads,
billboards and other advertising materials,
the size of the letters of such phrase shall
be at least one-half () the size of the
business name.
(As amended by CL Nos. 2008-053 dated 21 August 2008 and
2008-007 dated 21 January 2008)
Sec. X168 Management Contracts

a. Management contracts of banks
with management firms shall be limited
to consultancy and advisory services;
b. Only a natural person may be
elected or appointed as an officer of a bank,
without prejudice to such person being a
nominee of a management corporation:
Provided, That the responsibility and/or
accountability of anyone elected or
appointed to an officer position shall be
personal in nature and cannot be delegated
to a corporation; and
c. Any bank that enters into contracts
contrary to this policy shall be denied the
credit facilities of the BSP.
Sec. X169 Duties and Responsibilities of

Banks and their Directors/Officers in All
Cases of Outsourcing of Banking
Functions. When outsourcing of banking
functions is allowed by law, banks shall:
a. Carry out the same in accordance
with proper standards, ensuring the
integrity of the data, systems and controls
of the banks and subject to the supervisory,
regulatory and administrative authority of
the BSP over the banks and their directors/
officers;
b. Be responsible for the performance
thereof in the same manner and to the
same extent as it was before the
outsourcing;
c. Comply with all laws and
regulations governing the banking
activities/services performed by the
qualified service providers in its behalf
such as, but not limited to, keeping of
records and preparation of reports, signing
authorities, internal control and clearing
regulations; and
d. Manage, monitor and review on an
ongoing basis the performance by the
qualified service providers of the
outsourced banking activities/services.
X169.1 Prohibition against outsourcing
certain banking functions. No bank or any
director, officer, employee, or agent thereof
shall outsource inherent banking functions.
For purposes of this Section,
outsourcing of inherent banking functions
shall refer to any contract between the bank
and a service provider for the latter to
supply, or any act whereby the latter
supplies, the manpower to service the
deposit transactions of the former.
Banks cannot outsource management
functions except as may be authorized by
the Monetary Board when circumstances
justify.
See SEC Circular Nos. 5 dated 17 July 2008 and 14 dated October 2000.
Part I - Page 107
X169.2
08.12.31
X169.2 Outsourcing of information

technology systems/processes. Subject to
banks may outsource all information
technology systems and processes except
for certain functions affecting the ability of
the bank to ensure the fit of technology
services deployed to meet its strategic and
business objectives and to comply with all
pertinent banking laws and regulations,
such as, but not limited to, strategic
planning for the use of information
technology; determination of system
functionalities; change management
inclusive of quality assurance and testing;
service level and contract management;
and security policy and administration.
However, subject to prior approval of
the Monetary Board and submission of the
documentary requirements referred to in
Item a hereof, consultants and/or service
providers may be engaged to provide
assistance/support to the bank personnel
assigned to perform these excepted
functions.
A bank intending to outsource
information technology systems and
processes shall submit the following
documents to BSP which shall treat the
same as strictly confidential:
(1) Proposed contract between the
bank and the service provider which
should, at a minimum, include all the
following:
(a) Complete description of the work
to be performed or services to be provided;
(b) Fee structure;
(c) Provisions regarding on-line
communication availability, transmission line
security, and transaction authentication;
(d) Responsibilities
regarding
hardware, software and infrastructure
upgrades;
(e) Provisions governing amendment
and pretermination of contract;
Part I - Page 108
(f) Mandatory notification by the

service provider of all systems changes that
will affect the bank;
(g) Details of all security procedures
and standards;
(h) Responsibility, fines, penalties and
accountability of the service provider for
errors, omissions and frauds;
(i) Confidentiality clause covering all
data and information; solidary liability of
service provider and bank for any violation
of R.A. No. 1405 (the Bank Deposits
Secrecy Law) actions that the bank may
take against the service provider for breach
of confidentiality or any form of disclosure
of confidential information; and the
applicable penalties;
(j) Segregation of the data of the bank
from that of the service provider and its
other clients;
(k) Disaster
recovery/business
continuity contingency plans and
procedures;
(l) Adequate insurance for fidelity and
fire liability;
(m) Ownership/maintenance of the
computer hardware, software (program
source code), user and system
documentation, master and transaction
data files;
(n) Guarantee that the service provider
will provide necessary levels of transition
assistance if the bank decides to convert
to other service providers or other
arrangements;
(o) Access to the financial information
of the service provider;
(p) Access of internal and external
auditors to information regarding the
outsourced activities/services which they
need to fulfill their respective responsibilities;
(q) Access of BSP to the operations of
the service provider in order to review the
same in relation to the outsourced
activities/services;
X169.2
08.12.31
(r) Provision which requires the

service provider to immediately take the
necessary corrective measures to satisfy the
findings and recommendations of BSP
examiners and those of the internal and/or
external auditors of the bank and/or the
service provider; and
(s) Remedies for the bank in the event
of change of ownership, assignment,
attachment of assets, insolvency, or
receivership of the service provider.
(2) Minutes of meetings of the board
of directors of the bank concerned signed
by majority thereof, certified by the
secretary and attested by the president
documenting their discussions on the
following:
(a) The benefits and advantages of
outsourcing with respect to, among others,
its role and contribution to the
accomplishment of the strategic and
business plans of the bank as well as the
economy, efficiency and quality of its
over-all operations;
(b) The careful and diligent evaluation,
prior to selecting the service provider with
which it is entering into an outsourcing
contract, by the bank of various service
providers and their proposals, including
their reputation, financial condition, cost
for development, maintenance and support,
internal controls, recovery processes,
service level agreements, availability of
competent, technically qualified and
experienced personnel, strategic or
convenient location of support services and
such similar other considerations;
(c) The creation, organization and
membership of a senior management
oversight committee to handle and oversee
the efficient implementation and
monitoring of the applications/operations
of the service provider to ensure that the
same is in accordance with the existing
information technology initiatives, policies
and guidelines of the bank; the list of the
members of such committee, its
organizational chart, and a detailed

description of the roles and responsibilities
of its members must be included in the
minutes of the meeting or submitted as
attachments thereto;
(d) The creation, organization and
membership of a help desk to resolve all
queries, problems and other concerns
arising from the applications/operations
rendered by the service provider; and
(e) The systems and user acceptance
tests that will be conducted by the service
provider before full implementation of the
outsourced systems/processes and the
unsatisfactory results of which shall be valid
ground to rescind the contract with the
service provider.
(3) Profile of the selected service
provider or the non-bank partner, in case
of joint ventures and other similar
arrangements, which should include:
(a) Most recent and complete financial
and operational information;
(b) Track record;
(c) List of clientele, particularly banks
and the services provided thereto by the
service provider; and
(d) At the option of the service provider
or non-bank partner, other documents
demonstrative of its competence and
reputation in the field of information
technology as applied to banking operations.
The following are considered as
extension of the banks information
technology processes and are outsourcing
activities that need prior Monetary Board
approval under this Subsection:
(1) Connection of the banks ATM host
and/or CASA systems to an ATM consortium
or an Affiliate Switch Network (ASN).
However, no prior Monetary Board
approval shall be required for a bank
connected or seeking to connect with
Bancnet and/or Megalink or with ASN of
either ATM consortium: Provided, That it
passed/es the BSP-approved accreditation
process of either Bancnet or Megalink.
Part I - Page 109
X169.2 - X169.3
08.12.31
(2) Sponsoring bank arrangement. A

sponsoring bank arrangement is one where
a TB/RB or Coop Bank, which is not a
member of any ATM network consortium,
but wishes to provide ATM services and
terminals is sponsored by a member-bank
of any of the existing ATM consortium.
For purposes of these regulations, an
ATM network consortium is an entity that
operates and maintains an ATM switch
network connecting member institutions
while an Affiliate Switch Network (ASN) is
an aggregator/service provider that connects
its ATM switch with BancNet and/or
Megalink and extends that connection to
its subscribers and/ or members. ASN has
to pass its accreditation requirements of
BancNet and Megalink which includes
service level standards, BSP access, and
minimum paid-up capital of P300 million.
ASNs already interconnected with BancNet
and/or Megalink are required to comply
with the minimum paid-up capital on
staggered basis of: P100 million by 31
December 2008; P200 million by 31
December 2009; and P300 million by 31
December 2010.
A bank that intends to outsource its
internet and/or mobile banking services to
BancNet and/or Megalink shall no longer
require prior MB approval: Provided, That
the applicant bank had passed the BSPapproved accreditation process for
membership in BancNet and/or Megalink,
which requires, among others, a no
objection notice from the appropriate
department of the SES. Provided further,
That banks which intend to provide
electronic banking services via other
arrangements or service providers will still
have to comply with the existing regulations
on outsourcing in this Subsection and under
Sec. X621 on e-banking.
To ensure that it remains effective and
adaptive to the changing environment, the
accreditation process of BancNet and
Megalink for availment of the ATM
Part I - Page 110
interconnection, internet and mobile

banking services, shall be subject to
periodic BSP review and examination.
(As amended by M-2008-030 dated 12 September 2008)
1169.2 (Reserved)
2169.2 Automated teller machine
interconnection
(Deleted
by
M-2008-030
12 September 2008)
dated
3196.2 Automated teller machine

interconnection
(Deleted
by
M-2008-030
12 September 2008)
dated
X169.3 Outsourcing of other

banking functions
a. Subject to prior approval of the
Monetary Board, banks may outsource the
following functions, services or activities:
(1) data imaging, storage, retrieval and
other related systems;
(2) clearing and processing of checks
not included in the Philippine Clearing
House System;
(3) printing of bank deposit
statements;
(4) credit card services;
(5) credit investigation and collection;
(6) processing of export, import and
other trading transactions;
(7) property appraisal;
(8) property management services;
(9) internal audit, subject to the
(a) the board of directors and senior
management of the regulated entity remain
responsible for maintaining an effective
system of internal control and for providing
active oversight of the outsourced internal
audit activities/functions;
(b) the external service provider shall
be an independent external auditor
included in the list of BSP-selected external
auditors or a parent company which owns
X169.3
08.12.31
or controls more than fifty percent (50%)

of the subscribed capital stock of the
outsourcing entity: Provided, That Item
A2 of the general requirements under
Appendix 43 shall apply to the parent
company while Items A2, A4, A5,
and A6 shall apply to the independent
external auditor;
(c) the contract/service agreement
with the external service provider shall not
be entered into for a period longer than five
(5) years;
(d) there shall be a contingency plan
to mitigate any significant disruption,
discontinuity or gap in audit coverage,
particularly for high-risk areas;
(e) the written engagement contract
or service agreement with the external
service provider shall, as a minimum:
(i) define the rights, expectations and
responsibilities of both parties;
(ii) set the scope and frequency of,
and the fees to be paid for, the work to be
performed by the external service
provider;
(iii) state that the outsourced internal
audit services are subject to regulatory
review and that BSP examiners shall be
granted full and timely access to internal
audit reports and related working papers;
(iv) state that the external service
provider will not perform management
functions, make management decisions, or
act or appear to act in a capacity equivalent
to that of a member of management or an
employee of the institution, and will
comply with professional and regulatory
independence guidelines;
(v) specify that the external service
provider must maintain the audit reports
and related working papers/files for at least
five (5) years;
(vi) state that internal audit reports
are the property of the institution, that the
institution will be provided with copies
of related working papers/files it deems
necessary, and any information pertaining
to the institution must be kept

confidential; and
(vii) establish a protocol for changing
the terms of the service contract and
stipulations for default and termination of
the contract;
(10) marketing loans, deposits and
other bank products and services, provided
it does not involve the actual opening of
deposit accounts;
(11) general bookkeeping and
accounting services: Provided, That these
activities do not include servicing bank
deposits or other inherent banking
functions;
(12) offsite records storage services;
(13) front/back office functions, i.e.,
trade support services and downstream
processing activities, by parent to a
subsidiary or vice-versa, subject to the
(a) The bank intending to outsource
the aforementioned functions shall certify
that the front office functions to be done by
its parent/subsidiary (service provider) shall
be limited to trade support services;
(b) The bank shall remain a parent/
subsidiary of its subsidiary/parent (service
provider) and such service provider shall
service only entities belonging to its
business group;
(c) The bank shall certify that no
inherent banking functions involving
deposit transactions shall be outsourced to
its parent/subsidiary (service provider);
(d) The bank shall submit a Service
Level Agreement duly signed by the
concerned parties and any amendments
thereto, detailing the functions to be
outsourced, the respective responsibilities
of the bank and its parent/subsidiary
(service provider), and a confidentiality
clause; and
(e) Any breach in any of the above
conditions shall subject the outsourcing of
the aforementioned banking functions to
all the requirements of this Section;
Part I - Page 111
X169.3 - X169.5
08.12.31
(14) Back-up and data recovery

operations;
(15) Call center operations for credit
card and bank services: Provided, That such
bank services do not involve inherent
banking functions; and
(16) Loans processing, credit
administration and documentation services
in favor of subsidiaries, affiliates and other
companies related to it by at least five
percent (5%) common ownership;
(17) Loan documentation services
(such as mortgage registration); and
(18) Such other activities as may be
The bank concerned must submit the
same documentary requirements listed in
Subsec. X169.2a, except where they
exclusively pertain to information
technology operations.
b.
Without need of prior Monetary
Board approval, banks may outsource the
following functions, services or activities:
(1) printing of bank loan statements
and other non-deposit records, bank forms
and promotional materials;
(2) transfer agent services for debt
and equity securities;
(3) messenger, courier and postal
services;
(4) security guard services;
(5) vehicle service contracts;
(6) janitorial services;
(7) public relations services,
procurement services, and temporary
staffing: Provided, That these activities do
not include servicing bank deposits or other
inherent banking functions;
(8) sorting and bagging of notes and
coins;
(9) maintenance of computer
hardware, e.g., disk drives, printers,
monitors, UPS, network cabling systems;
(10) payroll of bank employees;
(11) telephone operator/receptionist
services;
(12) sale/disposal of acquired assets
(ROPA);
Part I - Page 112
(13) personnel
training
and
development;
(14) buildings, ground and other
facilities maintenance;
(15) legal services from local legal
counsel;
(16) compliance risk assessment and
testing;
(17 tax compliance services:
Provided, That the service provider is not
also the external auditor of the bank; and
(18) ATM card plastice embossing
service, subject to the following conditions:
a.
Only the ATM card number and
the name of the depositor are printed/
indicated on the plastic card and stored in
the magstripe; and
b.
Account/transaction validation is
done at the host level,i.e., the banks
computer, as the card number stored in the
magstripe is linked to the deposit account
number residing at the same host computer;
(19) ATM incident management
service: Provided, That the messages
transmitted by the ATM machines to the
service providers monitoring system are
purely ATM statuses and in no way shall client
or transaction information be sent; and
(20) Such other activities as may be
(As amended by Circular Nos.623 dated 09 October 2008,
621 dated 16 September 2008, 610 dated 26 May 2008, 596
dated 11 January 2008, 548 dated 25 September 2006 and
543 dated 08 September 2006)
X169.4 Service providers. When

allowed by law, banks may enter into
outsourcing contracts only with service
providers with demonstrable technical and
financial capability commensurate to the
services to be rendered.
X169.5 Review of subsisting
outsourcing contracts. Within six (6)
months from 5 December 2000
a.
Banks should submit a list of all
their existing contracts with service
providers, detailing the:
X169.5 - X169.12
08.12.31
(1) Services/activities
being
outsourced;
(2) Terms of the contracts;
(3) Measures, if any, undertaken by the
bank and/or service provider to ensure the
secrecy of bank deposits and confidentiality
of all other data and information; and
(4) Such other information as may be
necessary to show compliance with the
pertinent provisions of this Section or be
required by the Monetary Board; and
b.
For outsourcing contracts not in
accordance with this Section, the following
alternative courses of action are available
to the bank concerned:
(1) preterminate said contracts;
(2) renegotiate or remedy the same and
submit the amendments thereto or new
contracts to the BSP; or
(3) submit a program of compliance
to the BSP.
X169.6 - X169.10 (Reserved)
X169.11 Other banking services for
subsidiaries, affiliates and related
companies. A bank may be authorized,
upon prior Monetary Board approval, to
render the following services in favor of
subsidiaries, affiliates and companies
related to it by at least five percent (5%)
common ownership:
a. Credit card, bank and loans
reconciliation;
b. Credit card billing;
c. Time deposit processing;
d. Merchant settlement
e. Collections which may involve
legal action;
f. Credit application processing;
g. Call center support;
h. Telemarketing of bank, credit card
and insurance (life and non-life) products;
i. Human resource-related service;
j. Finance/accounting functions;
k. Documentation;
l. Cashiering;
m. Reports preparation;
n. Procurement;
o. Records coordination;
p. Mailroom and general services;
q. Internal audit services;
r. Credit administration services, such
as, limit administration, loan documentation,
loan administration, and credit reporting,
compliance and control;
s. Legal and compliance services;
t. Production of credit cards and
preparation of statement of accounts; and
u. Check writing services
subject to the condition that, as service
provider, the following shall be upheld by
the bank:
(a) Confidentiality of bank deposits
and investment in government bonds
(R.A. No. 1405);
(b) Prohibition against outsourcing of
inherent banking functions; and
(c) Prohibition on cross-selling except
as allowed under applicable regulations.
(As amended by Circular Nos. 606 dated 26 March 2008,
604 dated 03 March 2008, 597 dated 11 January 2008,
586 dated 16 October 2007, 569 dated 21 May 2007,
567 dated 04 May 2007 and 556 dated 12 January 2007)
X169.12 Other banking services to

other entities. A bank may render the
following services to other entities
(including non-related companies):
a. Collections and payments;
b. Safekeeping of securities;
c. Act as correspondent of other FIs;
d. Payroll service;
e. Enter into a conduit clearing
arrangement with indirect clearing
participants;
f. ATM cash loading service to
depositors;
g. Enter into an arrangement with
other banks to enable such other banks to
avail the service of an ATM network
consortium, and
h. Subject to prior Monetary Board
approval, such other services which are not
incompatible with banking business as may
be determined by the Monetary Board:
Part I - Page 113
X169.12 - X170.1
08.12.31
Provided, That the bank shall perform said

services as depositary or as an agent, subject
(1) The bank (or if the counterparty is
also a bank, both the bank providing the
service and the outsourcing bank jointly)
shall inform the appropriate department
of the SES at least thirty (30) calendar days
prior to undertaking the abovementioned
services. The bank may undertake said
activities if no objection has been
received from said department within said
thirty (30)-calendar day period.
(2) The proposed contract or
Memorandum of Agreement (MOA)
indicating, among others, the particular type
of service to be rendered (and if the
counterparty is also a bank, to be
outsourced) by the bank/s shall be kept on
file and be made available for inspection
during BSP examination;
(3) As a service provider, the following
shall be upheld by the bank:
(a) Confidentiality of bank deposits and
investment in government bonds (R.A. No.
1405);
(b) Prohibition against outsourcing of
inherent banking functions; and
(c) Prohibition on cross-selling except
as allowed under applicable regulations.
X169.13 - X169.18 (Reserved)

X169.19 Penalties. Violation of this
Section shall be subject to Sections 34, 35,
36 and 37 of R.A. No. 7653, the New
Central Bank Act. If the offender is a director
or officer or a bank, the Monetary Board
may also suspend or remove such director
or officer.
Sec. X170 Compliance System; Compliance
Officer. Banks shall develop and implement
a compliance system and appoint/designate
a compliance officer to oversee its
implementation.
Part I - Page 114
X170.1 Compliance system. The

compliance system shall have the following
basic elements.
a. A written compliance program
approved by the board of directors:
(1) The compliance program shall
enable the bank to identify the relevant
Philippine laws and regulations, analyze
the corresponding risks of non-compliance,
and prioritize the compliance risks (e.g.,
low, medium, high).
(2) The program shall provide for
periodic compliance testing with applicable
legal and regulatory requirements. Testing
frequency shall be commensurate with
identified risk levels (e.g., annual testing for
low-risk, quarterly testing for medium-risk,
monthly testing for high-risk). It shall also
provide for the reporting of compliance
findings noted to appropriate levels of
management.
(3) The program shall establish the
responsibilities and duties of the
compliance officer and other personnel
(if any) involved in the compliance
function.
(4) A copy of the compliance program
and the written approval of the board of
directors shall be submitted to the appropriate
department of the SES within twenty (20)
banking days from date of approval.
(5) The program shall be updated at
least annually to incorporate changes in
laws and regulations. Any changes in the
program shall likewise be approved by the
banks board of directors and submitted to
BSP within twenty (20) banking days from
the date of approval.
b. A constructive working relationship
with regulatory agencies.
The bank, through its compliance officer,
may consult the regulatory agencies for
additional clarification on specific provisions
of laws and regulations and/or discuss
compliance findings with the regulatory
authorities. A dialogue may also be initiated
with respect to borderline issues.
X170.1 - X170.4
08.12.31
c. A clear and open communication

process within the bank to educate and
address compliance matters.
Officers and staff shall be trained on the
regulatory requirements through regular
meetings, distribution of manuals and
dissemination of regulatory issuance.
d. Continuous monitoring and
assessment of the compliance program.
The program shall provide for the
periodic review of the compliance function
to measure its effectiveness. The review
may be carried out by the internal audit
department of the bank.
The compliance program may operate
parallel to or as part of a banks internal
control and auditing program.
X170.2 Compliance officer
a. The principal function of the
compliance officer is to oversee and
coordinate the implementation of the
compliance system. His responsibility shall
include the identification, monitoring and
controlling of compliance risk.
b. The appointment/designation of a
compliance officer shall require prior
approval of the Monetary Board. The
bio-data of the proposed compliance officer
department of the SES.
c. The compliance officer shall have
the skills and expertise to provide
appropriate guidance and direction to the
bank on the development, implementation
and maintenance of the compliance program.
d. All UBs/KBs, as well as TBs and
RBs/Coop Banks with total resources of
P500 million and above, shall appoint an
independent full-time compliance officer,
who shall have the rank of at least a vice
president or its equivalent.
e. For TBs and RBs/Coop Banks with
total resources of below P500 million, an
incumbent senior officer may be designated
concurrently as the banks compliance officer:
Provided, That such designation will not give
rise to any conflict of interest situation and

that the main function of the senior officer
shall be that of a compliance officer.
The internal auditor of a bank may also
be designated as its compliance officer
subject to the condition that his main function
shall be that of a compliance officer.
Transitory Provision. Compliance officers
concurrently holding the position of Head of
Internal Audit or Internal Auditor shall be
given one (1) year from 02 February 2008
within which to comply with this Subsection.
X170.3 Compliance risk. Compliance

risk is the risk of legal or regulatory
sanctions, financial loss, or loss to
reputation a bank may suffer as a result of
its failure to comply with all applicable
laws, regulations, codes of conduct and
standards of good practice.
X170.4 Responsibilities of the board
of directors and senior management on
compliance. Aside from the duties and
responsibilities of the board of directors
mentioned under Subsec. X141.3, the board
should oversee the implementation of the
compliance policy and ensure that
compliance issues are resolved expeditiously.
Senior management should be responsible for
establishing a compliance policy, ensuring
that it is observed, reporting to the board of
directors on its ongoing implementation and
assessing
its
effectiveness
and
appropriateness. Senior management should,
at least once a year, report to the board of
directors or a committee of the board on
matters relevant to the compliance policy and
its implementation, recommending any
required changes to the policy. The report
should assist the board members in making
an informed assessment as to whether the
institution is managing its compliance risk
effectively. However, any material breaches
of laws, rules and standards shall be reported
promptly.
Part I - Page 115
X170.5 - X170.9
05.12.31
X170.5 Status. The compliance

function should have a formal status within
the organization established by a charter or
other formal document approved by the
board of directors that defines the
compliance functions standing, authority
and independence, and addresses the
following issues:
(1) measures
to
ensure
the
independence of the compliance function
from the business activities of the bank;
(2) its role and responsibilities;
(3) its relationship with other functions
or units within the organization;
(4) its right to obtain access to
information necessary to carry out its
responsibilities;
(5) its right to conduct investigations
of possible breaches of the compliance
policy;
(6) its formal reporting relationships to
senior management and the board of
directors; and
(7) its right of direct access to the board
of directors or an appropriate committee of
the board.
The compliance charter or other formal
document defining the status of the
compliance
function
shall
be
communicated throughout the organization.
X170.6 Independence. The
compliance function should be independent
from the business activities of the institution.
It should be able to carry out its
responsibilities on its own initiative in all
units or departments where compliance risk
exists and must be provided with sufficient
resources to carry out its responsibilities
effectively. It must be free to report to senior
management and the board or a committee
of the board on any irregularities or breaches
of laws, rules and standards discovered,
without fear of retaliation or disfavor from
management or other affected parties. The
compliance function should have access to
all operational areas as well as any records
Part I - Page 116
or files necessary to enable it to carry out

its duties and responsibilities.
X170.7 Role and responsibilities of
the compliance function. The role and
responsibilities of the compliance function
should be clearly defined. If there is a
division of duties and responsibilities
between different functions such as legal,
compliance, internal audit or risk
management, the allocation of duties and
responsibilities to each function should be
properly delineated. There should likewise
be formal arrangements for cooperation
between each function and for the
exchange of relevant information.
X170.8 Cross-border issues. The
compliance function for institutions that
conduct business in other jurisdictions
should be structured to ensure that local
compliance concerns are satisfactorily
addressed within the framework of the
compliance policy for the organization as
a whole. As there are significant differences
in legislative and regulatory frameworks
across countries or from jurisdiction to
jurisdiction, compliance issues specific to
each jurisdiction should be coordinated
within the structure of the institutions
group-wide compliance policy. The
organization and structure of the
compliance function and its responsibilities
should be in accordance with local legal
and regulatory requirements.
X170.9 Outsourcing. Banks should
establish policies for managing the risks
associated with outsourcing activities.
Outsourcing of services/activities can
reduce the institutions risk profile by
transferring activities to others with the
necessary expertise to manage the risks
associated with specialized business
activities. However, the use of third
parties does not diminish the
responsibility of the board of directors
X170.9 - X171.2
08.12.31
and senior management to ensure that the

outsourced activity is conducted in a safe
and sound manner and in compliance
with applicable laws and regulations.
Compliance risk assessment and
testing may be outsourced, subject to
appropriate oversight by the compliance
officer: Provided, That a copy of the
outsourcing agreement stating the duties
and responsibilities as well as rights and
obligations of the contracting parties,
which agreement shall be approved by
the board of directors of the institution
concerned, must be submitted to the
appropriate department of the SES at least
thirty (30) days prior to its execution to
enable review of its compliance with
existing regulations on outsourcing of
banking functions.
The service level agreement shall
ensure a clear allocation of responsibilities
between the external service providers and
the bank. Furthermore, the outsourcing
bank should manage residual risks
associated with outsourcing arrangements,
including default, operational failures, and
possible disruption of services.
Sec. X171 Bank Protection. Each bank shall
adopt an adequate security program
commensurate to its operations, taking into
consideration its size, location, number of
offices and business operations.
X171.1 Objectives. These regulations

are designed to:
a. Promote maximum protection of
life and property against crimes (e.g.
robbery, hold-up, theft, etc.) and other
destructive causes;
b. Prevent
and
discourage
perpetration of crimes against bank; and
c. Assist law enforcement agencies in
the identification, apprehension and
prosecution of the perpetrators of crimes
committed against banks.
X171.2 Designation of security

officer. The board of directors of each
bank or the country head in the case of a
foreign bank branch, shall appoint or
designate a qualified security officer who
shall hold office under the direct authority
and supervision of the president of the bank
or the country head in the case of a foreign
bank branch. Subject to prior BSP approval,
banks with limited security risk exposure
due to the nature of their operations such
as single unit foreign bank branch operating
in a highly secured environment or TBs or
RBs/Coop Banks with total assets of less than
P100 million may appoint one of their senior
officers as security officer in a concurrent
capacity: Provided, That if the senior officer
so appointed does not possess the necessary
qualifications, he shall be supported by a
competent consultant/adviser until such
time that he acquires the necessary
competency on security matters: Provided,
further, That such appointment shall not
result to a conflict of interest situation.
The security officer must be: (a) at least
thirty (30) years of age; (b) be a college
graduate; (c) have at least five (5) years of
supervisory experience in the field of law
enforcement and/or security operations; and
(d) possess all the qualifications and none
of the disqualifications provided for under
Sections X142 and X143.
The security officer shall be
responsible for:
a. The development and administration
of a security program acceptable to BSP;
b. The conduct of continuing security
awareness program among all bank
employees to highlight that security is a
common concern;
c. Investigation of bank robberies/
hold-ups, recommending the filing of
appropriate charges in court as the evidence
may warrant and assisting in the prosecution
of the perpetrator(s) thereof;
d. The establishment of an effective
working relationship with the BSP, PNP,
and other law enforcement agencies in the
Part I - Page 117
X171.2 - X171.4
08.12.31
prevention of bank crimes and other natural

and man-made hazards; and
e. The conduct of continuing research
and studies on new techniques, methods
and equipment to enhance bank protection
measures.
For purposes of the foregoing, a
security management team headed by the
security officer may be constituted if
warranted.
X171.3 Security program. The

security program of each bank shall be in
writing, duly approved by its board of
directors or the country head in the case of
a foreign bank branch. In addition, the
security program shall define measures and
procedures to detect and prevent the
commission of bank crimes, as well as
provide contingency plans in case of
calamities, terrorist attacks and other
emergency situations. The security program
shall include the following:
i. Installation of the prescribed
minimum security devices;
ii. A schedule for the periodic
inspection, testing and servicing of all security
devices installed in each of the banks offices,
designation of an officer or employee
responsible for ensuring that such devices are
inspected, tested, serviced and kept in good
working order, and requiring record of such
inspections, testing and servicing;
iii. Standard operating procedures for
the safekeeping of all currencies,
negotiable securities and similar valuables
in vaults or safes;
iv. Provision for other security
measures and procedures aimed at giving
added protection to the bank, e.g.,
procedures for the transport of funds and
other cash items, and defining responsibility
for their implementation;
v. Provision for the training and
periodic re-training of employees in their
respective areas of responsibility under the
Part I - Page 118
security program, including the proper use

of security devices and proper employee
conduct during and after an emergency
situation;
vi. Contingency measures for security
and rescue operations in emergency
situations;
vii. Provision for the posting of
adequate number of security personnel in
all vital and/or critical areas in the banks
premises, and the minimum number of
hours when each personnel shall be on
duty; and
viii. Such other provisions/measures as
the president of the bank or country head
in the case of a foreign bank branch may,
in consultation with its security officer,
deem appropriate.
X171.4 Minimum security measures

a. Guard system. All banking offices
shall be manned by an adequate number
of security personnel to be determined by
the bank, taking into consideration its size,
location, costs and overall bank protection
requirement: Provided, That cash centers
shall be manned by an adequate number
of security guards as may be necessary
during banking hours. For this purpose
cash centers shall refer to branches which
also handle the cash requirements of other
branches of the same bank.
b. Security devices. Within 120
calendar days from 23 September 2008 in
the case of existing offices and before
opening for business in the case of offices
to be opened after 23 September 2008,
banks shall effect the installation, operation
and maintenance, as individually
appropriate, of the following security
devices in each banking office;
(1) A time delay device in the cash
vault/safe;
(2) A lighting system for illuminating
the area around the vault, if the vault is
visible from outside the banking office;
X171.4
08.12.31
(3) Tamper-resistant locks on exteior

doors and windows;
(4) A robbery alarm system or other
appropriate device for promptly notifying
the nearest law enforement office either
directly or through an intermediary of an
attempted, ongoing or perpetrated robbery;
(5) Anti-burglary or intrusion system
capable of detecting promptly an attack on
the outer doors, walls, floor or ceiling of the
bank premises, including the vault(s); and
(6) Such other devices like the closed
circuit television (CCTV) and video
recording system appropriate to deter the
commission of bank crimes and assist in
the identification and apprehension of the
culprit/s:
Provided, That the bank security officer
shall consider, among other things, the
following:
(i) The incidence of crimes against the
particular banking office and other business
establishments in the area where the
banking office is located;
(ii) The amount of currency or other
valuables exposed to robbery and other
man-made hazards;
(iii) The distance of the banking office
from the nearest law enforcement office and
the time ordinarily required for
law-enforcement officers to arrive at the
banking office;
(iv) The cost of the security devices;
(v) Other existing security measures in
effect at the banking office; and
(vi) The physical characteristics of the
banking office structure and its surroundings.
Each bank shall install, operate and
maintain security devices which are
expected to give a general level of bank
protection equivalent, at least, to the
standards prescribed herein.
c. Vaults and safes. Vault walls,
ceilings and floors, shall be made of
steel-reinforced concrete or such other
equally safe materials/specifications. Vault
doors shall be made of steel or other drill
and torch resistant material, equipped with
a dual combination lock and time-delay

device, and provided with inner and outer
grill doors: Provided, That all vaults
constructed after 23 September 2008 shall
be equipped with a breathing/ventilation
device and emergency button capable of
giving audible and visible signal in case of
accidental lock-up.
A vault record book shall be maintained
to record all activities relative to the opening
and closing of the vault.
Safes should be sufficiently heavy or be
securely anchored to the premises where
located. The door shall be equipped with a
combination lock with a time-delay device
if used for safekeeping cash and other
valuables. The body shall consist of steel
with an ultimate tensile strength of 50,000
pounds per square inch or the equivalent
in metric system.
Safe and vault combinations must be
changed whenever the custodian is
terminated or transferred to another place of
assignment. A record of the names of the
holder of the keys and combinations shall be
maintained for each lock, safe, vault and
compartment. Changing of combinations
shall be documented to pinpoint responsibility
and to ensure confidentiality and proper
observance of this requirement.
d. Security of the premises. For
emergency purposes and where applicable,
each banking office shall be provided with a
back door with a steel or grill door which shall
be used as an alternative exit door for
evacuation in case of fire, flood, bomb threats,
wind damage, explosion, civil disturbance,
earthquake, or other emergency.
Steel grills, where applicable, shall
support exterior glass doors and windows
of all banking offices for protection against
any forcible entry. Access to the back door
shall be limited to authorized bank
personnel. Opening and closing thereof
before and after banking hours shall be
recorded in a registry.
Firearms and other deadly weapons shall
not be allowed inside bank premises except
Part I - Page 119
X171.4 - X171.8
08.12.31
when so authorized by the bank. A signage

for this purpose shall be conspicuously placed
near the main entrance door of the bank.
Specific guidelines as to when to allow
firearms and other deadly weapons inside
bank premises should be incorporated in the
security program.
A bank shall maintain within its
premises a record of the addresses and
telephone numbers of the nearest law
enforcement agencies, hospitals, rescue
agencies and fire departments.
The security officer of each bank shall
conduct, at least annually, a security survey
of bank premises and make available the
inspection report to BSP examiners during
regular examination.
The bank shall conduct fire,
earthquake and bomb threat drill at least
once a year.
e. ATM. ATM sites shall be provided
with adequate security. Where there are
no security personnel assigned to secure the
ATM, an anti-tampering device shall be
installed or the ATM and its immediate
surroundings shall be regularly inspected
to promptly detect any attempt to rob or
destroy the same.
f. Armored Car Operation. To ensure
the protection of crew members and
valuables, all armored vehicles shall be built
with bullet-resistant materials capable of
withstanding the firepower of high-powered
firearms, e.g., M16 and M14 rifles.
Moreover, armored vehicles shall be
equipped with a vault or safe or a partition
wall with a combination lock designed to
prevent retrieval of the cargo while in transit.
When in use the armored vehicles shall be
provided with at least two (2) armed guards
and its operations must be supervised by at
least two (2) officers of the bank.
All canvass bags that contain cash and
other items of value shall be provided with
padlocks for security and control purposes.
Armored cars shall not be operated as
mobile bank.
Part I - Page 120
X171.5 Reports. Banks shall conduct

a review and self-assessment of their
security program to ensure their
compliance with prescribed security
requirements. Any substantive amendment
thereto shall be approved by the banks
board of directors or country head in the
case of branches of foreign banks. The selfassessment of compliance with prescribed
security requirements together with the
updated security program (if amended
during the year) shall be submitted
annually to the appropriate department
of the SES on or before 30 January of the
following year in accordance with the
format shown in Appendix 10. The selfassessment together with the updated
security program shall be considered
Category A-2 reports.
X171.6 Bangko Sentral inspection

During regular examination, the BSP
reserves the right to perform a compliance
assessment of the adequacy of a banks
security arrangements. The BSP, with
approval of the Governor, may also
conduct at any time a targeted inspection
of the banks implementation of its security
program to determine compliance with
regulations. For this purpose, the BSP may
avail of the services of experts as resource
persons.
X171.7 Common security service

provision. A bank, with prior BSP approval,
may share the services of a security officer
or a security management team with its
related FIs.
X171.8 Sanctions. Any violation of

the provisions of this Section, as well as
non-compliance with the minimum
standards set forth or any directive of the
Monetary Board issued pursuant hereof,
shall be subject to the administrative
X171.8 - X176
08.12.31
sanctions provided under Section 37 of

R.A. No. 7653 and may, depending on the
materiality or seriousness of the violation,
constitute a ground for considering the
same as an unsafe and unsound banking
practice.
Sec. X173 Supervision by Risks. The
guidelines on supervision by risk to provide
guidance on how banks should identify,
measure, monitor and control risks are
The guidelines set forth the
expectations of the BSP with respect to
the management of risks and are intended
to provide more consistency in how the
risk-focused supervision function is
applied to these risks. The BSP will review
the risks to ensure that a banks internal
risk management processes are integrated
and comprehensive. All banks should
follow the guidelines in their risk
management efforts.
Sec. X174 Market Risk Management. The

guidelines on market risk management in
Appendix 73 set forth the expectations of
the BSP with respect to the management of
market risk and are intended to provide
more consistency in how the risk-focused
supervision function is applied to this risk.
Banks are expected to have an integrated
approach to risk management to identify,
measure, monitor and control risks. Market
risk should be reviewed together with other
risks to determine overall risk profile.
The BSP is aware of the increasing
diversity of financial products and that
industry techniques for measuring and
managing market risk are continuously
evolving. As such, the guidelines are
intended for general application; specific
application will depend to some extent on
the size, complexity and range of activities

undertaken by individual banks.
(Circular No. 544 dated 15 September 2006)
Sec. X175 Liquidity Risk Management

The guidelines on liquidity risk
management in Appendix 74 set forth the
expectations of the BSP with respect to the
management of liquidity risk and are
intended to provide more consistency in
how the risk-focused supervision function
is applied to this risk. Banks are expected
to have an integrated approach to risk
management to identify, measure, monitor
and control risks. Liquidity risk should be
reviewed together with other risks to
determine overall risk profile.
The guidelines are intended for general
application; specific application will
depend on the size and sophistication of a
particular bank and the nature and
complexity of its activities.
Sec. X176 Technology Risk Management

The guidelines on technology risk
management to ensure that banks have the
knowledge and skills necessary to
understand and effectively manage their
technology-related risks are in Appendix 75.
The guidelines contain two (2) main
parts. The first outlines the primary risk
related to the banks use of technology and
the second describes a risk management
process on how banks should manage these
risks. Key points include the following:
a. The use of technology-related
products, services, delivery channels and
processes exposes a bank to various risks,
particularly Operational, Reputation,
Compliance and Strategic risk.
b. Banks are expected to have an
integrated approach to risk management to
identify, measure, monitor, and control
risks. Technology-related risks should be
reviewed together with other bank risks to
determine the banks overall risk profile.
Part I - Page 121
X176 - X196.2
06.12.31
c. In using technology, bank

management should engage a rigorous
analytic process to identify and quantify
risks, to the extent possible, and to establish
risk controls to manage risk exposures.
d. Technology-related risk management
process involves three (3) essential elements:
(1) Planning
(2) Implementing
(3) Measuring and monitoring performance
These elements are critical to an
effective
technology-related
risk
management process of a well-managed
bank, regardless of size.
(Circular No. 511 dated 03 February 2006)
Secs. X177 X195 (Reserved)

Sec. X196 Voluntary Liquidation. The
following guidelines shall be observed
when a bank decides to undertake voluntary
liquidation as a consequence of voluntary
dissolution, such as (i) by vote of the board
of directors and stockholders, where no
creditors are affected; (ii) judgment of the
SEC after hearing the petition for voluntary
dissolution; (iii) amending the articles of
incorporation to shorten the corporate term.
approval. Upon voluntary dissolution of a
bank pursuant to the provisions of the
Corporation Code, voluntary liquidation
may be undertaken by the bank itself
through its board of directors, by a trustee
appointed by the bank, or by a receiver
appointed to the bank: Provided, however,
That no voluntary dissolution shall be
undertaken by a bank without prior
approval of the Monetary Board: Provided,
further, That requests for approval of a
voluntary dissolution shall be accompanied
by a liquidation plan which lays down the
procedure to be adopted by the bank in the
event of liquidation: Provided, finally, That
written notice shall be sent to the Monetary
Board before actual liquidation is
Part I - Page 122
undertaken in accordance with the

liquidation plan previously approved by the
Monetary Board.
X196.2 Liquidation plan. The
minimum requirements to be set forth in a
liquidation plan are the following:
a. Inventory/Appraisal of assets and
liabilities. Submission to the Monetary
Board within thirty (30) days from written
notice of liquidation, a schedule/inventory
and status/appraisal reports on assets and
liabilities of the bank.
b. Notice to creditors requirement.
Notice by registered mail to all recorded
claimants of the bank, and notice by
publication in a newspaper of general
circulation at least once a week for two (2)
consecutive weeks, to be made within thirty
(30) days from submission of aforesaid
inventory of assets and liabilities.
c. Conversion of assets into money.
Projected timetable in the conversion, manner
of sale (public auction, sealed bidding, or
on negotiated basis), notice by publication
requirement, and report on liquidation to
be submitted to the Monetary Board.
d. Final notice to claimants/creditors.
Undertaking of the board of directors/
trustee/receiver to cause, within thirty (30)
days from conversion into money of all or
substantially all of the assets of the bank,
the publication in a newspaper of general
circulation at least once a week for two (2)
consecutive weeks of a notice giving
claimants/creditors fifteen (15) days within
which to file their claims.
e. Inventory of remaining claims
against the bank. Submission to the
Monetary Board of a complete list of all
remaining claims against the bank, within
thirty (30) days from the deadline given in
the final notice to claimants/creditors.
f. Plan for distribution of proceeds of
sales and distribution of liquidating
dividends. Submission to the Monetary
Board of a distribution plan of assets within
X196.2 - X199
05.12.31
thirty (30) days from conversion of all or

substantially all of the assets of the bank.
X196.3 - X196.7 (Reserved)
X196.8 Final liquidation report. The
board of directors/trustee/receiver shall
submit to the Monetary Board a final
liquidation report after winding up the
affairs of the bank.
misappropriation and destruction of the

banks assets;
d. receiving or permitting or causing
to be received in said bank any deposit,
collection of loans and/or receivables;
e. paying out or permitting or
causing to be paid out any funds of said
bank; and
f. transferring or permitting or causing
to be transferred any securities or property
of said bank.

X198.3 - X198.8 (Reserved)
Sec. X198 Insolvency or Receivership of
Banks. The rules and regulations governing
insolvency and receivership are as follows:
X198.1 Definition of term. A bank
declared insolvent or placed under
receivership by the Monetary Board shall
refer to a banking institution that has been
forbidden from doing business in the
Philippines by the Monetary Board under
the applicable grounds provided for under
Section 30 of R.A. No. 7653 and placed
under receivership of the PDIC.
X198.2 Prohibited acts. Any director
or officer of a bank declared insolvent or
placed under receivership by the
Monetary Board shall not commit any of
the following acts:
a. refusing to turn over the banks
records and assets to the designated
receivers;
b. tampering with bank records;
c. appropriating for himself or another
party, or destroying or causing
X198.9 Penalties and sanctions. Any

director or officer of a bank declared
insolvent or placed under receivership by
the Monetary Board who commits any of
the foregoing acts shall be subject to the
sanctions under Sections 36 and 37 of R.A.
No. 7653, in correlation with Section 66 of
R.A. No. 8791. Moreover, any such
director or officer thereby sanctioned shall
be included in the watchlist files of
directors/officers disqualified by the
Monetary Board from holding any
position in any bank or FI.
Sec. X199 General Provision on
Sanctions. Except as otherwise provided,
any violation of the provisions of this Part
shall be subject to Sections 36 and 37 of
R.A. No. 7653.
The guidelines for the imposition of
monetary penalty for violations/offenses
with sanctions falling under Section 37
of R.A. No. 7653 on banks, their directors
and/or officers are shown in Appendix 67.
Part I - Page 123
X201 - X201.3
05.12.31
PART TWO
DEPOSIT AND BORROWING OPERATIONS
A. DEMAND DEPOSITS
Section X201 Authority to Accept or
Create Demand Deposits. Banks may
accept or create demand deposits subject
to withdrawal by check.
A UB/KB may accept or create demand
deposits subject to withdrawal by check,
without prior authority from the BSP.
A TB/RB/Coop Bank may accept or
create demand deposits upon prior
authority of the BSP.
X201.1 Prerequisites to accept or
create demand deposits for Thrift Banks/
Rural Banks/Cooperative Banks. In
addition to the Standard Pre-qualification
Requirements for the Grant of Banking
Authorities enumerated in Appendix 5, a
TB/RB/Coop Bank applying for authority to
accept or create demand deposits shall also
comply with the following requirements:
a. The applicant TB must have
complied with the minimum capital required
under Subsecs. X106.1 and X106.2.
In the case of RB/Coop Bank, it must
have net assets of at least P5.0 million:
Provided, That RBs which have been
authorized to accept or create demand
deposits prior to the approval of R.A. No.
7353 (Rural Banks Act of 1992) shall be
allowed to continue servicing such deposits.
The terms capital and net assets shall
have the same meaning as in Sec. X106.
b. It must be a member of the
Philippine Deposit Insurance Corporation
(PDIC) in good standing.
X201.2 Requirements for accepting
demand deposits. After a TBs/RBs/Coop
Banks application to accept demand
deposits has been approved, it may
actually accept such deposits, subject to

a. Submission of a certification signed
by the President/Chairman of the Board
of the bank stating that the requirements
enumerated under Subsec. X201.1 have
been complied with up to the day before
the checking account services are actually
offered/extended to the public;
b. That if it is not a member of the
(PCHC), it has appointed a commercial
bank, or a normally operating thrift bank
which is a direct participant in clearing with
the PCHC/BSP and has complied with the
minimum capital required for commercial
banks, thru which it shall participate in
the check clearing system; and
c. That it has complied with all other
conditions that the BSP may impose.
The applicant bank shall submit a
written notice to the appropriate
supervising and examining department of
the BSP of the actual date when the
demand deposit service is offered to the
public not later than ten (10) banking days
from such offering of the service.
X201.3 Sanctions. If any part of
the certification submitted by the bank as
required in these guidelines is found to be
false, the following sanctions shall be
imposed, without prejudice to the
sanctions under Section 35 of R.A. No.
7653.
a. On the Bank
Suspension of its authority to accept
or create demand deposits for one (1) year.
b. On the Certifying Officer
A fine of P5,000 per day from the time
the certification was made up to the time
the certification was found to be false.
Part II - Page 1
X202 - X203
05.12.31
Sec. X202 Temporary Overdrawings;

Drawings Against Uncollected Deposits
The following regulations shall govern
temporary overdrawings and drawings
against uncollected deposits (DAUDs).
a. Temporary
overdrawings.
Temporary overdrawings against current
account shall not be allowed, unless
caused by normal bank charges and other
fees incidental to handling such accounts.
Banks which violate these regulations shall
be subject to a fine of one-tenth of one
percent (1/10 of 1%) per day of violation,
computed on the basis of the amount of
overdrawing or fines in amounts as may
be determined by the Monetary Board, but
not to exceed P30,000 a day for each
violation, whichever is lower.
Technical overdrawings arising from
force posting in-clearing checks shall be
debited by banks under Returned Checks
and Other Cash Items Not in Process of
Collection which is part of Other Assets
in the Statement of Condition. Items to
be lodged under this account shall consist
only of in-clearing checks which may
result in technical overdrawn accounts
and shall be immediately reversed the
following day.
The checks lodged under Returned
Checks, etc. shall either be returned or
honored the following day before clearing.
The items to be used as cover for the
honored checks should only consist of any
of the following:
(1) Cash
(2) Cashiers, Managers or Certified
Checks
(3) Bank Drafts
(4) Postal Money Orders
(5) Treasury Warrants
(6) Duly funded On us Checks
(7) Fund transfers/credit memos within
the same bank representing proceeds of loans
granted under existing regulations.
Peso demand deposit accounts
maintained by foreign correspondent
Part II - Page 2
banks with commercial banks shall not

be subject to the above-mentioned
regulations: Provided, That:
(a) The maintenance of non-resident
correspondent banks peso checking
accounts and overdrawings therefrom are
covered by reciprocal arrangement;
(b) Temporary overdrawings are
covered within fifteen (15) days from the
date overdrawings are incurred; and
(c) Such accounts are credited only
through foreign exchange inward remittance.
b. Drawings against uncollected
deposits. DAUDs shall be prohibited
except when the drawings are made
against uncollected deposits representing
managers/cashiers/treasurers checks,
treasury warrants, postal money orders and
duly funded on us checks which may be
permitted at the discretion of each bank.
Sec. X203 Checks Without Sufficient
Funds. To complement the provisions of
Batas Pambansa Blg. 22, (An Act Penalizing
the Making or Drawing and Issuance of a
Check Without Sufficient Funds or Credit),
the following regulations shall govern:
a. The drawee bank shall stamp, write
or print on a dishonored check or on a paper
attached thereto the date the check is
presented for payment and the reason for the
refusal to pay the same to the holder thereof.
b. Where the reason for the dishonor
of a check is stamped, written or printed
on a paper attached to the checks, the
drawee bank shall indicate the pertinent
details, such as the names of the drawer,
the payee and the drawee bank, the date
and amount of the check, the check
number and the date of dishonor.
c. The drawee bank shall use only
the remark or notation Drawn Against
Insufficient Funds, No Funds, or
Insufficient Funds stamped, written, or
printed on, or attached to the check
dishonored or returned by reason of
insufficiency of funds or credit.
X203
05.12.31
d. Notwithstanding receipt of an
order to stop payment, the drawee bank
shall likewise stamp, write, or print on, or
attach to the check any of the remarks or
notations mentioned in Item c hereof
indicating that there were no sufficient
funds in or credit with such bank for the
payment in full of such check, if such be
the fact. The bank shall also indicate
receipt of a stop payment order.
e. A check and other clearing item
(COCI) dishonored by reason of
insufficiency of funds or credit shall be
returned by the drawee bank to the
negotiating bank not later than the next
clearing for returned COCI.
(1) For Local Exchanges
There shall be two (2) separate clearing
windows for COCIs returned due to
insufficient funds or credit in the local
exchanges in the integrated Metro Manila
area served by the PCHC and the BSP
Regional Clearing Centers (RCCs). (The
settlement of interbank transactions vis-vis covering reserve requirement/
deficiency of banks demand deposit
account (DDA) is shown in Appendix 39.)
(a) AM Returned COCI Clearing - The
AM returned COCI clearing in the
integrated Metro Manila local exchange
shall be conducted from 7:30 AM to 10:00
AM on the banking day immediately
following the original date of presentation
of the COCI to PCHC.
The AM returned COCI clearing
window for local exchanges in the BSP
RCCs shall be conducted from 8:00 AM to
9:30 AM on the banking day immediately
following the original date of presentation
of the COCI to the RCC.
Returned COCI in the AM clearing
windows shall be given value on the same
date as the date of original presentation of
the COCI to PCHC and RCC. The amount
of debits and credits on the date of original
presentation shall be reversed to the extent
of the amount of credits and debits arising
from the returned COCI. The process

restores the balances of the demand
deposits of banks with the BSP to their
position prior to the settlement of the
clearing results affected by the COCI later
returned due to insufficient funds or credit.
(b) PM Returned COCI Clearing - The
PM returned COCI clearing window shall
coincide with the afternoon regular
clearing. Other dishonored COCI not
returned in the morning clearing session
shall be presented by the drawee bank to
the negotiating bank in the afternoon
regular clearing. Such returned COCI shall
be given value on the date the returned
COCI was presented to PCHC for the
integrated Metro Manila area and to BSP
RCCs.
Return of Dishonored COCI - A COCI
dishonored by reason of insufficiency of
funds or credit shall be returned by the
drawee bank to the negotiating bank not
later than the next clearing for returned
COCI.
(2) For Out-of-town Exchanges
For out-of-town exchanges, a COCI so
dishonored shall be returned by the
drawee bank to the negotiating bank within
the period specified in the clearing Circular
Letters issued by BSP.
(3) COCI not coursed through the
Clearing System
A COCI dishonored by reason of
insufficiency of funds or credit which was
not coursed through the clearing system
shall be returned by the drawee bank to
the holder or the negotiating bank, as the
case may be, not later than the business
day following the date the COCI is
presented for payment with the drawee
bank.
The negotiating bank shall, in turn,
return a COCI dishonored by reason of
insufficiency of funds or credit to the holder
not later than the business day following
its receipt of the dishonored COCI from
the drawee bank.
Part II - Page 3
X204 - 2205
06.12.31
Sec. X204 Current Accounts of Bank

Officers and Employees. As a general
rule, officers and employees of banks, their
spouses and relatives within the second
degree of consanguinity and affinity,
including partnerships, associations or
corporations in which such officers and
employees, their spouses and relatives
within the second degree of consanguinity
and affinity, individually or as a group, own
or control at least a majority of the capital
are prohibited from maintaining demand
deposits or current accounts with the
banking office in which they are assigned.
However, officers and employees without
direct access and involvement in the
handling of transactions and/or records
pertaining to demand deposit operations
may be allowed to maintain demand
deposits or current accounts in the banking
office where they are assigned subject to
a. It shall be the responsibility of the
bank concerned to identify the officers,
employees, departments or units with
direct involvement in its demand deposit
operations and/or deposit records;
b. The opening of current accounts of
officers and employees shall be subject to
approval of the head of the branches
department or any designated higher
ranking officer; and
c. The following minimum operating
control measures shall be implemented to
ensure systems integrity and mitigate
technology-related risks:
(1) Tagging of accounts. Savings and
demand deposits of officers and employees,
their spouses and relatives within the second
degree of consanguinity and affinity,
including partnerships, associations or
corporations in which such officers and
employees, their spouses and relatives
within the second degree of consanguinity
and affinity, individually or as a group, own
or control at least a majority of the capital
shall be tagged in the banks current
Part II - Page 4
accounts/savings accounts (CA/SA)

system;
(2) Monitoring of accounts. All
accounts maintained by officers,
employees and said relatives including
their business interests shall be monitored
by a designated officer who shall be
responsible for ensuring that accounts of
officers and staff are properly maintained.
Any irregularity in the account activity shall
be promptly investigated and reported to
the appropriate management level;
(3) Access controls. Access to all data,
application software, operating systems
and utilities must be restricted to authorized
persons through appropriate identification
mechanisms and access codes and such
authentication and authorization controls
must be fully documented and auditable.
No officer or employee, regardless of rank
or position, shall be allowed to process any
transaction from initiation to final
authorization;
(4) Data
capture.
Operating
procedures for data capture, update and
retrieval must be strictly adhered to. The
operating system shall maintain a permanent
record of each authenticated user session
including every user input; and
(5) Audit trails. Detailed records and
audit trails shall be maintained to substantiate
the processing of all transactions. Audit trails
must be reviewed periodically by a
designated officer commensurate with the
risk level of the information system. The
review process must ensure that the reviewer
does not review his/her own activity.

Sec. 2205 Check Clearing Rules for
Thrift Banks Authorized to Accept
Demand Deposits. The following are the
check clearing rules for TBs authorized to
accept demand deposits:
2205
06.12.31
a. TBs authorized to accept demand

deposits may participate in the clearing
process conducted by the PCHC in the
integrated Metro Manila clearing area and
by the BSP in regional clearing centers
through either of the following modes:
(i) maintenance of NOW accounts with
KBs; (ii) conduit arrangements with KBs;
and (iii) direct participation in clearing
operations, at the option of the TB
concerned.
b. In conduit arrangements, caps
shall be set on the net clearing losses to
be passed on to the conduit KB by the
conduit TB.
To address the settlement risks, the
pro-forma conduit arrangement should
include provisions setting aforementioned
cap on the net clearing losses. The cap is
defined as the combined value of the
following amounts:
(1) the TB's reserve deposit with
BSP; and
(2) the value of collateralized
overdraft line that may be extended by the
conduit KB to the conduit TB.
Parties
to
existing
conduit
arrangements shall have thirty (30) days
from 8 April 1998 to comply with the
above requirement.
c. For TBs authorized to participate
in the PCHC and BSP check clearing
operations, ceilings for clearing losses not
covered by interbank borrowings shall be
established and unwinding of the clearing
transactions shall be authorized when the
ceilings are breached.
(1) The proposed ceiling is defined as
the collateralized overnight clearing line
that will be extended by BSP. Every TB
authorized to participate directly in the
clearing operations of PCHC should apply
for this line with the appropriate
department of the SES. The availments
against the approved loan line shall bear
interest at the ninety-one (91)-day Treasury
Bill rate of the last auction immediately

preceding the availments.
(2) Procedures for unwinding shall
apply to all inward items, other than
Returned Items and to local exchanges only.
(3) The aggregate value of all inward
items of all clearing centers, including On
Manila clearing demands presented to
PCHC, shall be ranked from highest to
lowest. The unsettled net clearing losses
shall be eliminated by unwinding the
inward items starting from the clearing
centers, including PCHC, with highest
aggregate value.
(4) In case the aggregate value of the
inward items for a given clearing center,
except PCHC, exceeds the unsettled net
clearing losses, the total inward items for
that clearing center shall be the subject of
unwinding.
(5) In the case of checks cleared
through PCHC, the inward clearing items
shall be unwound to the extent of the
unsettled net clearing loss. The selection
of the specific demand items to be
covered by unwinding shall be based on
PCHC rules.
(6) Checks which are the subject of
the unwound clearing transactions shall
be returned to the presenting banks not
later than 9:00 A.M. of the following
clearing day.
d. TBs authorized to participate
directly in the clearing in PCHC and BSP
regional clearing centers shall be subject
to the following measures to manage the
settlement risks:
(1) Settlement of Outward items shall
be value dated on the day the checks are
cleared, net of returns. For this purpose,
the value date or settlement date referred
to herein shall be defined uniformly as the
next clearing day when dishonored checks
are returned within the reglementary
period, reckoned after the date of
presentation for local clearing in the
Part II - Page 5
2205 - X213
08.12.31
integrated Manila Clearing area for PCHC

and in all BSP regional clearing centers.
For inter-regional clearing items, outward
Manila clearing items and to Manila
clearing items, the value or settlement date
shall be defined in clearing circulars to be
issued by BSP.
(2) A ceiling shall be set on the
amount of overdraft a TB authorized to
accept demand deposits may incur due
to failure to cover clearing losses through
interbank borrowings. The ceiling is
defined as the collateralized overnight
clearing line that will be extended by BSP
DLC. The availments against the
approved loan line shall bear interest at
the ninety-one (91)-day Treasury Bill
(T-Bill) rate of the last auction
immediately preceding the availments.
(3) Should the overdraft exceed the
ceiling, the BSP Accounting Department
is authorized to instruct the PCHC and the
BSP regional clearing centers to unwind
the clearing transactions following the
procedures defined in Item "c" of this
Section.
The operating guidelines implementing
Items "c" and "d" of this Section are in
Appendix 31.
e. Any overdraft incurred under
Section 102 of R.A. No. 7653 may be
converted into an emergency loan or
advance provided it complies with the
guidelines governing the grant of
emergency loans under Subsec. X272.2.
Sec. 3205 Check Clearing Rules for Rural

Banks Who Are Members of the Philippine
Clearing House Corporation. The provisions
of Items "c" and "d" of Sec. 2205 and the
implementing operating guidelines in
Appendix 31 shall also apply to RBs which
are members of the PCHC.
Part II - Page 6
Sec. X207 Check Clearing Operations

During Public Sector Holidays. The
guidelines on check clearing operations
during public sector holidays are shown
in Appendix 84.
(M-2008-025 dated 13 August 2008)

B. SAVINGS DEPOSITS
Sec. X213 Servicing Deposits Outside
Bank Premises. Banks may be authorized
by the BSP to solicit and accept deposits
outside their bank premises, subject to the
a. Minimum capital requirement is met;
b. No major supervisory concerns
affecting safety and soundness;
c. The area of operations shall be
within one (1)- hour normal travel time by
land/sea from any head office or branch,
except in remote areas where more than
one (1)- hour normal travel time may be
allowed; and
d. Applicant bank shall institute and
maintain the following minimum
safeguards:
(1) All deposit solicitors shall be
initially bonded for at least P1,000 subject
to the increase thereof to approximate their
daily collections;
(2) Deposit solicitors shall be provided
with proper identification cards with
photograph and signature of each respective
solicitor, certified to by the appropriate officer
of the bank. Said identification cards shall be
worn by each solicitor at all times at the
upper breast of his outer garment when
soliciting deposits; and
(3) Adequate insurance coverage for
funds in transit (representing deposits
collected outside banking premises) shall
be secured by applicant bank from
insurance companies not included in the
list of companies blacklisted by the
Insurance Commissioner;
X213 - X215
05.12.31
(4) Deposit slips shall be in booklet

form, prenumbered, in triplicate copies
and in three (3) colors - the original to
be issued to the depositor, the second
copy to be used for posting reference,
and the third copy to be retained in the
booklet;
(5) All collections shall be turned over
to the cashier at the end of each day
accompanied by a Collection Summary
Report to be accomplished in duplicate
which shall contain the following minimum
information:
(a) Date of the report
(b) Names and addresses of the
depositors
(c) Deposit slip numbers
(d) Amounts of deposit
(e) Savings account and passbook
numbers
(f) Name and signature of solicitor
rendering the report
(6) Depositors shall always be
required to accomplish a Signature Card
when opening an account, which card
shall be used always as reference in
checking the genuineness/authenticity of
signatures affixed on withdrawal slips or
authorizations for withdrawal;
(7) Deposits/withdrawals shall be
recorded by the bookkeeper or any
ledger clerk, except any bank solicitor,
in the depositors ledger cards and
passbooks on the same day that such
deposits/withdrawals are accepted.
Passbooks shall be returned to the
depositors not later than the following

business day;
(8) At the end of each month,
depositors shall be advised in writing of
the balances of their deposits with the bank,
the advise slips of which shall never be
handcarried by the solicitors themselves;
(9) Places of assignments of bank
solicitors shall be rotated at least quarterly.
Sec. X214 Withdrawals. Banks are
prohibited from issuing/accepting
withdrawal slips or any other similar
instruments designed to effect withdrawals
of savings deposits without requiring the
depositors concerned to present their
passbooks and accomplishing the
necessary withdrawal slips, except for
banks authorized by the BSP to adopt the
no passbook withdrawal system: Provided,
That banks which are already adopting the
no passbook withdrawal system shall be
given six (6) months from effectivity of this
Manual to seek approval from the BSP.
The provisions of Sec. X202b shall also
apply to withdrawals from savings deposits.
Sec. X215 Rental Deposits of Lessees
The following guidelines shall govern the
opening and handling by banks of deposits
made by lessees under Section 5(b) of
Batas Pambansa Blg. 25, otherwise known
as the Rent Control Law:
a. The deposit made by the lessee shall
only be accepted by the bank under a special
savings account in the name of the lessor;
(Next page is Part II- Page 7)
Part II - Page 6a
X215 - X223.2
07.12.31
b. The bank shall require the lessee

to submit a copy of the written notice sent
to the lessor for the deposit made, stating
among other things, the date and amount
of the deposit and the name and address
of the lessor;
c. The bank, at its option, may require
the lessee to submit any supporting
document, such as the lease contract or
official receipts of previous rentals paid,
which will show the specimen signature
of the lessor, or other papers to identify
the lessor;
d. The bank shall segregate from its
regular savings deposit accounts and
maintain a separate subsidiary control
ledger for deposits made under Section 5(b)
of Batas Pambansa Blg. 25;
e. Any withdrawal against these
special savings deposit accounts may only
be allowed in favor of the lessee concerned
before the amount deposited under
consignation has been accepted by the
lessor, or when authorized by the lessor;
f. The expenses which may be
incurred by the bank with respect to such
rental deposits shall be charged against
the lessor;
g. All the minimum internal control
standards applicable to savings deposit
accounts prescribed in Sec. X163 shall be
complied with; and
h. The acceptance of such rental
deposits, however, shall be optional or
discretionary only upon the bank
concerned.
Secs. X216-X220 (Reserved)
Sec. X221 Peso Savings Deposit Accounts
of Embassy Officials. Embassy officials are
allowed to open peso savings deposit
accounts with Philippine banks: Provided,
That they submit proof of conversion of
foreign currency to peso with Philippine
banks.
(M-2007-021 dated 15 September 2007)

C. NEGOTIABLE ORDER OF
WITHDRAWAL ACCOUNTS
Sec. X223 Authority to Accept Negotiable
Order of Withdrawal Accounts
Negotiable Order of Withdrawal (NOW)
accounts are interest-bearing deposit
accounts that combine the payable on
demand feature of checks and investment
feature of savings accounts.
A UB/KB may offer NOW accounts
without prior authority of the Monetary
Board.
A TB/RB/Coop Bank may accept NOW
accounts upon prior approval of the
Monetary Board.
X223.1 Prerequisites to accept NOW
accounts for thrift banks/rural banks/
cooperative banks. In addition to the
Standard Pre-qualification Requirements for
the Grant of Banking Authorities
enumerated in Appendix 5, a TB/RB/Coop
Bank applying for authority to accept NOW
accounts shall also comply with the
following requirements:
a. The applicant TB must have
complied with the minimum capital required
under Subsecs. X106.1 and X106.2.
In the case of RB/Coop Bank, it must
have net assets of at least P5.0 million:
Provided, That RBs which have been
authorized to accept or create NOW
accounts prior to the approval of R.A. No.
7353 (Rural Banks Act of 1992) shall be
allowed to continue servicing such deposits.
The terms capital and net assets shall
have the same meaning as in Sec. X106.
b. It must be a member of the PDIC in
good standing.
X223.2 Requirements for accepting
NOW accounts. After a TBs/RBs/Coop
Banks application to accept NOW account
has been approved, it may actually accept
Part II - Page 7
X223.2 - X231
05.12.31
the same subject to the following

conditions:
by the president/chairman of the board of
the bank stating that the requirements
enumerated under Subsec. X223.1 have
been complied with up to the day before
the NOW account services are actually
offered/extended to the public; and
b. That it has complied with all other
written notice to the appropriate department
of the SES of the actual date when the NOW
account deposit service is offered to the
public not later than ten (10) banking days
from such offering of the service.
certification submitted by the bank as
required in these guidelines is found to be
false, the following sanctions shall be
imposed, without prejudice to the
7653:
a. On the bank
Suspension of its authority to accept or
create NOW accounts for one (1) year.
b. On the certifying officer
Sec. X224 Rules on Servicing NOW
Accounts. The following rules shall be
observed in servicing NOW accounts:
a. Prior to or simultaneous with the
opening of a NOW account, the bank shall
inform the depositor of its terms and
conditions;
b. The bank shall be responsible for
the proper identification of its depositors; it
shall require, among other things, two (2)
specimen signatures and such other
pertinent information;
c. Deposits shall be covered by
deposit slips in duplicate duly validated and
Part II - Page 8
initialed by the teller receiving the deposit.

A copy of the deposit slip shall be furnished
the depositor;
d. NOW accounts shall be kept and
maintained separately from the regular
savings deposits;
e. Blank NOW forms shall be
prenumbered and shall be controlled as
in the case of unissued blank checks;
f. A bank statement shall be sent to
each depositor at the end of each month
for confirmation of balances; and
g. Banks must use the form prescribed
by present rules for NOW accounts.
Nothing herein shall be construed as
precluding a TB, RB or Coop Bank from
applying for authority to accept both
demand deposits and NOW accounts.
Sec . X225 Minimum Features. The order
of withdrawal form shall have a size of
three (3) inches by seven (7) inches, and
shall be printed on security/check paper.
It shall contain, as a minimum, the features
of the pro-forma order of withdrawal
Sec. X226 Clearing of NOW Accounts. Any
NOW account which may be deposited
with a bank other than the drawee bank
may be cleared through the PCHC in
Manila and the Regional Clearing Units in
regional clearing centers designated by the
BSP in accordance with the clearing
procedures. Nothing in this Section
shall prevent direct settlement between
the parties concerned.
The provision of Sec. X202 shall also
apply for withdrawals on NOW accounts.
D. TIME DEPOSITS
Sec. X231 Term of Time Deposits. Time
deposits shall be issued for a specific
period of term.
X232 - X233.4
05.12.31
Sec. X232 Special Time Deposits. Authority

shall be automatically granted to any
accredited banking institution which may
participate in the supervised credit
program to accept special time deposits
from the Agrarian Reform Fund
Commission with interest lower than the
rate allowed on time deposits accepted
from the general public. Such deposits
shall be exempt from the legal reserve
requirements, as an exception to the
existing policies on the matter.
Sec. X233 Certificates of Time Deposit
a. Negotiable Certificates of Time
Deposit (NCTDs)
(1.) UBs/KBs may issue NCTDs without
(2.) TBs/RBs/Coop Banks may issue
NCTDs upon the prior approval of the BSP.
b. Non-Negotiable Certificates of
Time Deposit
Banks may issue long-term nonnegotiable tax-exempt certificates of time
deposit without approval of the BSP.
X233.1 Prerequisites to issue
NCTDs for thrift banks/rural banks/
cooperative banks. In addition to the
Standard Pre-qualification Requirements for
the Grant of Banking Authorities
enumerated in Appendix 5, a TB/RB/Coop
Bank applying for authority to issue NCTDs
shall also comply with the following
requirements:
a. Applicants capital must be at least
P150.0 million. For this purpose, capital
shall have the same meaning as in Sec.
X106; and
b. It must be a member of the PDIC in
good standing.
X233.2 Requirements for issuing
NCTDs. After a TBs/RBs/Coop Banks
application to issue NCTDs has been
approved, it may actually issue the same
subject to the following conditions:

by the president/chairman of the board of
the bank stating that the requirements
enumerated under Subsec. X233.1 have been
complied with up to the day before the
NCTDs are actually issued to the public; and
b. That it has complied with all other
The applicant bank shall submit a written
notice to the appropriate department of the
SES of the actual date when the NCTDs are
actually issued to the public not later than ten
(10) banking days from such issuance.
X233.3 Minimum features
a. Form; denomination - NCTDs may
be issued in bearer or other form denoting
negotiability and shall have a standard
format to be prescribed by the BSP which
shall be prenumbered serially and
predenominated.
The
minimum
denomination shall be at the discretion of
the issuing bank. No certificate payable to
bearer shall contain words prohibiting its
negotiation.
b. Term - The minimum maturity of the
certificates shall be 731 days.
c. Manner of issuance - The certificates
shall be issued only upon receipt of funds
equivalent to their face value.
d. Manner of printing - NCTDs shall
be printed on security paper by the Security
Printing Plant (SPP) of the BSP.
Orders for the printing of the desired
forms shall not exceed a total value
equivalent to twenty percent (20%) of the
issuing banks capital accounts (based on
the quarter immediately preceding the
request for printing) at any one time.
Additional orders for printing which shall
result in an excess over the prescribed
benchmark shall require prior BSP approval.
X233.4 Insurance coverage. The
NCTDs shall be insured with the PDIC.
Banks issuing bearer certificates shall
imprint on the instrument the following:
Part II - Page 9
X233.4 - X233.9
07.12.31
For purposes of deposit insurance by

the PDIC, the holder shall have his name
registered in the books of the issuing bank.
X233.5 Desistance from issuing new
NCTDs. Unless authorized by the BSP,
TBs/RBs/Coop Banks with outstanding
NCTDs shall immediately desist from
issuing new NCTDs.
All outstanding NCTDs shall be valid
and negotiable up to their maturity dates
and shall not be subject to renewal.
X233.6 Sanctions. If any part of
the certification submitted by the bank
as required in these guidelines is found
to be false, the following sanctions shall
be imposed, without prejudice to the
7653.
a. On the bank
Suspension of its authority to issue
NCTDs for one (1) year.
b. On the certifying officer
X233.7 - X233.8 (Reserved)
X233.9 Long-term negotiable
certificates of time deposit. The following
guidelines shall govern the issuance of longterm negotiable certificates of time deposit
(LTNCTD) with a minimum maturity of five
(5) years:
a. Prior BSP approval. No LTNCTD
shall be issued without the prior approval
of the BSP.
b. Application for authority of the
issuing bank. An application for authority
on each issue/issue program of LTNCTD
shall be filed with the appropriate
department of the SES: Provided, That the
issue period of an issue program of two (2)
or more tranches shall not exceed one (1)
year from approval.
Part II - Page 10
The application shall be signed by the

president/country manager (branch of a
foreign bank) of the bank. It shall be
accompanied by a certified true copy of
directors authorizing the issuance of
LTNCTD indicating, among others, the
issue size, offering period, purpose or
intended use of proceeds thereof, registry
bank, underwriter/arranger, selling
agent(s) and market maker(s).
c. Pre-qualification requirements
(1) Issuing bank
A bank applying for authority to issue
an LTNCTD shall comply with the
(a) It has complied with the following
capital adequacy requirements:
(i) Minimum capitalization as defined
under Section X106; and
(ii) Risk-based capital adequacy ratio
under Sec. X116 within the sixty (60) days
application;
(b) It has not incurred net weekly
reserve deficiencies within eight (8) weeks
application;
(c) It has generally complied with
banking laws, rules and regulations,
orders or instructions of the Monetary
Board and/or BSP Management in the
last two (2) preceding examinations prior
to the date of application, more
particularly:
(i) The
ceilings
on
credit
accommodations to DOSRI;
(ii) Liquidity floor requirements for
government deposits;
(iii) Single borrowers loan limit; and
(iv) Investment in bank premises and
other fixed assets;
(d) It maintains adequate provisions for
probable losses commensurate to the
quality of its asset portfolio but not lower
than the required valuation reserves as
determined by the BSP;
X233.9
07.12.31
(e) It does not have float items

outstanding for more than sixty (60)
calendar days in the Due From/To Head
Office/Branches/Offices accounts and the
Due From Bangko Sentral account
exceeding one percent (1%) of the total
resources as of date of application;
(f) It has no past due obligations with
the BSP or with any government FI;
(g) It has established a risk
systems, appropriately structured risk limits,
effective internal controls and complete,
timely and efficient risk reporting system;
(h) It has a CAMELS Composite Rating
of at least 3 in the last regular
examination; and
(i) It is a member of PDIC in good
standing.
(2) Registry bank
(a) It may be a UB, a KB, or such other
specialized entity that may be qualified by
the Monetary Board;
(b) In the case of a UB or a KB:
(i) It must be a third party:
(aa) with no subsidiary/affiliate
relationship with the issuing bank; and
(bb) which is not related to the issuing
bank in any manner that would undermine
its independence.
(ii) It must have adequate facilities and
the organization to do the following:
(aa) Maintain the Electronic Registry
Book (ERB);
(bb) Deliver transactions within the
agreed trading period; and
(cc) Issue registry confirmations to
holders of LTNCTDs.
(iii) It must have a CAMELS Composite
Rating of at least 3 in the last regular
examination.
(a) It is either a UB or an IH: Provided,
That if an offering is on a best-efforts basis,
such arranger may also be a KB;
(b) It must be a third party, such that:

(i) it has no subsidiary/affiliate
relationship with the issuing bank; and
(ii) it is not related in any manner that
would undermine the objective conduct of
due diligence.
(c) Underwriters must be wellcapitalized and must have adequate risk
management as evidenced by compliance
with Items c(1)(a), (d), (g) and (h) as may
be applicable.
(4) Selling agent
It may be any FI, with dealership or
brokering license, under the regulatory
supervision of the BSP.
(5) Market maker
(a) It must not be the issuing bank;
(b) It must be a third party which is
not related to the issuing bank in any
manner that would undermine its
independence;
(c) It must be a FI, with dealership or
brokering license, under the regulatory
supervision of the BSP; and
(d) It must be well-capitalized and must
have adequate risk management as
evidenced by compliance with Items c(1)(a),
(d), (g) and (h) as may be applicable.
d. Additional requirements for the
issuance of LTNCTD. After a banks
application to issue an LTNCTD has been
approved, it may issue the same, subject to
the submission of the following additional
requirements:
(1) At least fifteen (15) days before the
date of offering:
(a) Written waiver of the secrecy of
deposits on said LTNCTD by the issuing
bank, its subsidiaries, affiliates and wholly
or majority-owned or -controlled entities of
such subsidiaries and affiliates;
(b) Information disclosure and the terms
and conditions of the LTNCTD issuance;
(c) Promotional materials; and
(d) Specimen of the proposed registry
confirmation and purchase advice from each
selling agent/market maker which will
evidence sale of the LTNCTD.
Part II - Page 11
X233.9
07.12.31
(2) Within ten (10) days after issuance

of the initial and subsequent tranches:
Written notice to the appropriate
department of the SES of the actual date of
initial/tranche offering accompanied by a
certification by the president/country
manager that the pre-qualification
requirements under Item c(1) have been
complied with up to the time of offering.
e. Functions/responsibilities of the
parties involved. The respective parties shall
have, among others, the following
functions/responsibilities:
(1) Registry bank
(a) Generates and maintains the ERB;
(b) Records any transfer of ownership;
(c) Issues and sends registry
confirmation to holders;
(d) Functions as paying agent for
periodic interest and principal payments;
and
(e) Monitors compliance with the
prohibition on holdings of LTNCTD, as
prescribed under Item h hereof.
(a) Conducts due diligence on the
issuing bank and determines the valuation/
pricing of the primary issue;
(b) Prepares the prospectus/information
disclosure/updates for multi-tranche issues;
(c) Formulates the distribution/
allocation plan for the initial offering and
ensures proper and orderly distribution of
the primary sale/issue of the LTNCTDs;
(d) Disseminates information to
prospective depositors/investors of
LTNCTDs on the terms and conditions of
the issue (including information of nonpretermination by the depositor prior to
original maturity and the liquidity
mechanism in secondary trades) and the
rights and obligations of the holder, issuer,
market maker/selling agent, underwriter/
arranger and registry bank; and
(e) When selling to its clients, it must
perform the functions/responsibilities of the
selling agent under Items e(3)(a) and (b).
Part II - Page 12
(3) Selling agent

(a) Verifies identity of each investor
and applies other standards to combat
money laundering as required under Sec.
X691; and
(b) Issues the purchase advice for the
primary offering of the LTNCTDs.
(4) Market maker
(a) Sets independent pricing for the
secondary trading of LTNCTDs;
(b) Posts daily the bid and offer prices
for the LTNCTDs on the screen of at least
one (1) of the information providers until
the operation of a fixed income exchange
for LTNCTDs;
(c) Verifies identity of each investor and
applies other standards to combat money
laundering as required under Sec. X691;
(d) Issues the purchase advice for the
secondary sale of the LTNCTDs; and
(e) Ensures secondary market transfers
and registration in coordination with the
registry bank.
f. Change of Underwriter/Arranger,
registry bank, selling agent(s)/market
maker(s). After an application for
authority to issue LTNCTDs has been
approved by the BSP, the issuing bank
cannot change its underwriter/arranger,
registry bank, selling agent(s) and market
maker(s) without the prior approval of the
BSP.
g. W a i v e r o f t h e s e c r e c y o f
deposits for market makers. A market
maker who holds an LTNCTD for its own
account must issue a waiver of the secrecy
of deposits in favor of the BSP for
examination purposes. Any information
obtained from an examination
of said
LTNCTD shall be held strictly confidential.
h. Prohibition on holdings of
LTNCTDs. The issuing bank including its
related companies (subsidiaries and
affiliates and wholly or majority-owned or
-controlled entities of such subsidiaries and
affiliates) cannot be a holder of the
LTNCTDs of the issuing bank.
X233.9
07.12.31
The issuing bank shall provide the

registry bank with an updated list of all
related companies. This report shall be a
Category B report.
For purposes of this Subsection, an
affiliate is an entity, at least twenty percent
(20%) but not exceeding fifty percent (50%)
of the outstanding voting stock of which is,
owned by the issuing bank.
i. Agreements between issuing bank
and registry bank/selling agent(s)/market
maker(s). The agreements between the
issuing bank and the registry bank/market
makers/selling agents shall comply with the
provisions of Sec. X169 on bank service
contracts. The issuing bank shall be liable
for any damages to investors/depositors
caused by actions of said registry bank,
selling agent(s)/market maker(s) contrary to
the agreements entered into.
j. Minimum features
(1) Form; denomination - An LTNCTD
shall be in scripless form with a third party
registry bank maintaining the ERB. To have
legal effect, it shall comply with the
provisions of R.A. No. 8792 (Electronic
Commerce Act) particularly on the
existence of an assurance on the integrity,
reliability and authenticity of the LTNCTD
in electronic form. LTNCTDs shall be
registered in the name of individuals or
corporations, negotiable and prenumbered
serially. The minimum denomination shall
be at the discretion of the issuing bank.
(2) Currency - Denomination shall be
in Philippine pesos.
(3) Term - The minimum maturity of the
LTNCTDs shall be five (5) years.
(4) Primary Offering/Secondary
Trading The initial offering shall be
executed through an underwriter or an
arranger. Subsequent negotiations in
secondary trading must be executed through
authorized market maker(s).
k. Purchase Advice and Registry
Confirmation
(1) The Purchase Advice and Registry

Confirmation shall conspicuously contain
the following caveat:
(a) This LTNCTD cannot be
terminated by the holder nor the Issuing
Bank before (maturity date). However,
negotiations/transfers from one (1) holder to
another do not constitute pretermination.
The caveat shall apply if the issuing bank
commits no pretermination. Otherwise, it
shall read as follows:
This LTNCTD cannot be terminated by
the holder before (maturity date). However,
it may be preterminated at the instance of
the Issuing Bank upon prior notice to the
holder on record. Negotiations/transfers
from one (1) holder to another do not
constitute pretermination; and
(b) All negotiations/transfers of this
LTNCTD prior to maturity must be coursed
through a Market Maker.
(2) The selling agent/market maker
shall issue a Purchase Advice to evidence
initial purchase/secondary trading of
LTNCTD with the original copy given to the
holder.
(3) The registry bank shall issue a
Registry Confirmation to evidence
ownership of the LTNCTD, with the original
copy given to the holder.
l. Issue size and aggregate ceiling. An
issuing bank can issue LTNCTDs up to
300% of its total capital accounts as defined
under Subsec. X106/X121.5: Provided, That
each issue/issue program size does not
exceed P5.0 billion pesos. This ceiling shall
be subject to a regular review by the BSP.
m. Deposit insurance coverage. The
LTNCTDs shall be insured with the PDIC,
subject to applicable rules and regulations,
among others, on maximum insurance
coverage.
n. Pretermination by the issuer.
LTNCTDs may be preterminated by the
issuing bank, subject to the following
conditions:
Part II - Page 13
X233.9 - X233.11
07.12.31
(1) The Information Disclosure,

Purchase Advice and Registry Confirmation
LTNCTD may be preterminated by the
issuing bank;
(2) Thirty (30)-day prior notification
must be given to the appropriate department
of the SES together with the justification for
the pretermination;
(3) Thirty (30)-day prior notification to
holders of record;
(4) Notwithstanding any agreement to
the contrary, the issuer shall shoulder the
tax due on the interest income already
earned by the holders; and
(5) The issuing banks reserve positions
shall be recomputed retroactively based on
the applicable reserve rate(s) for regular time
deposits during the affected periods.
If the recomputed amounts result in a
reserve deficiency, the issuing bank shall
be fined with the corresponding monetary
penalties. The preceding monetary penalty,
however, shall not be imposed if
pretermination by the issuer is due to a change
in law or regulation that will increase the cost
of maintaining the LTNCTDs.
o. Non-pretermination by the holder.
Presentation of the LTNCTD to the issuing
bank for payment before the maturity date
is not allowed. However, negotiation or
transfer from one (1) holder to another shall
not constitute pretermination of the LTNCTD.
p. Sanctions. Without prejudice to the
other sanctions prescribed under Section 37
of R.A. No. 7653 and the provisions of
Section 16 of R.A. No. 8791, the following
sanctions will be imposed on any issuing
bank, registry bank and other parties for
failure to perform their respective functions/
responsibilities and for non-disclosure or
misrepresentation of information:
(1) On the issuing bank Suspension
of its authority to issue LTNCTDs,
disqualification from future issuance of
LTNCTDs and a monetary penalty of
P30,000 for each violation.
Part II - Page 14
(2) On the registry bank Disqualification to be a registry bank for

one (1)-year and a monetary penalty of
(3) On all authorized selling agents/
market makers Disqualification to be
appointed as selling agent/market maker for
one (1) year and a monetary penalty of
(4) On the certifying officer - A fine of
P5,000 per day from the time of required
disclosure up to the time disclosure was
made; or from the time misrepresentation
was made up to the time the information
was corrected.
(5) On the responsible officer A fine
of P30,000 for participating or confirming
in the non-disclosure or misrepresentation
of information.
X233.10 (Reserved)
X233.11 Long-term non-negotiable
tax-exempt certificates of time deposit
The issuance of long-term non-negotiable
tax-exempt certificates of time deposit shall
be governed by the following rules:
a. Minimum features
(1) Form; denomination - The
certificate shall contain words denoting its
non-negotiability and shall be issued by
banks only in the name of individuals
with denominations in increments of
P1,000.00.
(2) Term - The minimum maturity of the
certificate shall be five (5) years.
(3) Manner of issuance - The certificate
shall be issued only upon receipt of funds
equivalent to their face value.
(4) Manner of printing - The certificate
shall be printed on security paper.
(5) Pre-termination - In case of pretermination, the deposit shall be subject to
income tax as provided under Section
24(B)(1) of the Tax Reform Act of 1997
which states that xxx a final tax shall be
X233.11 - X234.3
05.12.31
imposed on the entire income and shall

be deducted and withheld by the
depository bank from the proceeds of the
long-term deposit or investment certificate
based on the remaining maturity thereof:
(a) Four (4) years to less than
five (5) years
5%
(b) Three (3) years to less than
four (4) years
12%
(c) Less than three (3) years
20%"
b. Insurance coverage. The deposits
shall be insured with the PDIC, subject to
applicable rules and regulations, among
others, on maximum insurance coverage.
c. Reserves against long-term nonnegotiable certificates of time deposit. The
rate and form of required reserves on regular
time deposit shall also apply to the required
reserves on long-term non-negotiable taxexempt certificates of time deposit.
E. DEPOSIT SUBSTITUTE OPERATIONS
(QUASI-BANKING FUNCTIONS)
Sec. X234 Scope of Quasi-Banking
Functions. The following rules and
regulations shall govern the quasi-banking
operations of banks.
X234.1 Elements of quasi-banking
The essential elements of quasi-banking are:
a. Borrowing funds for the borrowers
own account;
b. Twenty (20) or more lenders at any
one time;
c. Methods of borrowing are
issuance, endorsement, or acceptance of
debt instruments of any kind, other than
deposits, such as acceptances, promissory
notes, participations, certificates of
assignments or similar instruments with
recourse, trust certificates, repurchase
agreements, and such other instruments as
the Monetary Board may determine; and
d. The purpose of which is (1)
relending, or (2) purchasing receivables or
other obligations.
X234.2 Definition of terms and

phrases. The following terms and phrases
shall be understood as follows:
a. Borrowing shall refer to all forms
of obtaining or raising funds through any
of the methods and for any of the purposes
provided in Subsec. X234.1 whether the
borrowers liability thereby is treated as
real or contingent.
b. For the borrowers own account
shall refer to the assumption of liability in
ones own capacity and not in
representation, or as an agent or trustee,
of another.
c. Purchasing of receivables or other
obligations shall refer to the acquisition
of claims collectible in money, including
interbank borrowings or borrowings
between financial institutions, or of
acquisition of securities, of any amount
and maturity, from domestic or foreign
sources.
d. Relending shall refer to the
extension of loans by an institution with
antecedent borrowing transactions.
Relending shall be presumed, in the
absence of express stipulations, when the
institution is regularly engaged in lending.
e. Regularly engaged in lending
shall refer to the practice of extending
loans, advances, discounts or rediscounts
as a matter of business, as distinguished
from isolated lending transactions.
X234.3 Transactions not considered
quasi-banking. The following shall not
constitute quasi-banking:
a. Borrowing by commercial,
industrial and other non-financial
companies through any of the means listed
in Subsec. X234.1 hereof, for the limited
purpose of financing their own needs or
the needs of their agents or dealers; and
b. The mere buying and selling
without
recourse of instruments
mentioned in Subsec. X234.1: Provided,
That:
Part II - Page 15
X234.3 - X234.5
05.12.31
(1) The institution buying and selling

without recourse shall indicate in
conspicuous print on its instrument the phrase
without recourse, sans recourse or words
of similar import that will convey the absence
of liability or guarantee by said institution; and
(2) In the absence of the phrase
without recourse, sans recourse or
words of similar import, the instrument so
issued, endorsed or accepted, shall
automatically be considered as falling within
the purview of these regulations: Provided,
further, That any of the following practices
or practices similar and/or tantamount thereto
in connection with a without recourse
transaction is hereby prohibited:
(a) Issuance of postdated checks by a
financial intermediary, whether for its own
account or as an agent of the debt
instrument issuer, in payment of the debt
instrument, sold, assigned or transferred
without recourse; or
(b) Issuance by a financial intermediary
of any form of guaranty on sale transactions
or on negotiations or assignment of debt
instruments without recourse; and
(c) Payment with its own funds by a
financial intermediary which assigned,
sold or transferred the debt instrument
without recourse, unless the financial
intermediary can show that the issuer has
with the said financial intermediary funds
corresponding to the amount of the
obligation.
X234.4 Pre-conditions for the
exercise of quasi-banking functions. No
bank shall engage in quasi-banking
functions without authority from the BSP:
Provided, however, That banks authorized
by the BSP to perform universal or
commercial banking functions shall
automatically have the authority to engage
in quasi-banking functions: Provided,
further, That the authority to obtain funds
from the public, which shall mean twenty
(20) or more persons under Section 8.2 of
Part II - Page 16
R.A. 8791, is not a condition but an

authorization for the bank or quasi-bank,
once the Monetary Board has granted the
quasi-banking license.
In addition to the Standard Prequalification Requirements for the Grant of
Bank Authorities enumerated in Appendix
5, a TB securing BSP authority to engage
in quasi-banking functions must meet the
a. The bank must have a networth or
combined capital of at least P650.0 million
computed in accordance with Section
X106;
b. The bank is well capitalized with
risk-based capital adequacy ratio of not
lower than twelve percent (12%) at the time
of filing the application;
c. The banks operation during the
preceding calendar year and for the period
application has been profitable;
d. The bank has elected at least two
(2) independent directors and all its
directors have attended the required
seminar for directors of banks conducted
or accredited by the BSP;
e. The bank has established a risk
systems, appropriately structured risk limits,
effective internal controls, and complete,
timely and efficient risk reporting system; and
f. The bank has a CAMELS Composite
Rating of at least 3 in the last regular
examination with management rating of not
lower than 3.
X234.5 Certificate of Authority from
the Bangko Sentral. A bank securing BSPs
Certificate of Authority to engage in quasibanking functions shall file an application
with the appropriate SED of the BSP. The
application shall be signed by the bank
president or officer of equivalent rank and
X234.5 - X234.6
08.12.31
shall be accompanied by the following

documents:
a. Certified true copy of the
authorizing the application;
b. A certification signed by the
president or the officer of equivalent rank
that the institution has complied with all
conditions/prerequisites for the grant of
authority to engage in quasi-banking
functions;
c. An information sheet;
d. Bio-data signed under oath, of the
members of the managerial staff who will
undertake quasi-banking operations;
e. Borrowing-investment program for
one (1) year which should include at the
minimum:
(1) planned distribution of portfolios
as to
(a) underwriting;
(b) commercial paper markets;
(c) stocks and bonds;
(d) government securities;
(e) receivables financing, discounting
and factoring;
(f) leasing; and
(g) direct loans;
(2) expected sources of funds to support
investment program classified as to
(a) maturity: short, medium and longterm;
(b) interest rates; and
(c) domestic or foreign sources
whether institutional or personal.
TBs authorized to engage and are
actually performing quasi-banking
functions but do not meet the new capital
requirement are hereby given a period of
two (2) years reckoned from 11 November
2004 within which to comply with the
minimum capital requirement in Subsec.
X234.4 (a): Provided, That in case the TB
has an approved capital build-up program
under Subsec. X501.2, for its FDCU
license, the approved capital build-up
program, may be considered compliance
with this requirement: Provided, further,

That in case, the TB has no approved capital
build-up program, the minimum capital
requirement may be substituted by a capital
build-up program for a period of not more
than five (5) years from 11 November 2004
and which must be approved by the
Monetary Board. Such capital build-up
program shall be in equal annual or
diminishing amounts and shall be
of the SES within three (3) months from
11 November 2004.
TBs which fail to comply with the
required capitalization upon expiration of
said two (2) year period given them or those
which fail to comply with approved capital
build-up program shall liquidate their
quasi-banking operations within one (1)
year and shall be considered revoked/
cancelled. The license of a TB with
functions but has not actually engaged in
quasi-banking functions and has not
complied with the above minimum capital
requirements as of 11 November 2004,
shall automatically be revoked.
X234.6 Sale, discounting,
assignment or negotiation by banks of
their credit rights arising from claims
against the BSP. Pursuant to the policy of
the BSP to promote investor protection and
transparency in securities transactions as
important components of capital markets
development, credit rights in Special
Deposit Account (SDA) placements and
reverse repo agreements with the BSP, shall
not be subject of sale, discounting,
assignment or negotiation on a with or
without recourse basis.
Any violation of the provisions of this
Subsection shall be considered a less serious
offense and shall subject the bank and the
director/s and/or officer/s concerned to the
sanctions provided under Section X299.
(Circular No. 636 dated 17 December 2008)
Part II - Page 17
X235 - X235.3
05.12.31
Sec. X235 Deposit Substitute Instruments

Any deposit substitute transaction by a bank
performing quasi-banking functions shall be
limited to its own promissory notes, repo
agreements, and certificates of assignment/
participation with recourse.
X235.1 Prohibition against use
of acceptances, bills of exchange and
trust certificates. Acceptances, bills of
exchange, and trust certificates shall not
be used by banks as evidence of deposit
substitute liabilities in connection with
their quasi-banking functions. This
prohibition shall not apply to the
acceptance or negotiation of bills of
exchange in connection with trade
transactions, or to the issuance of trust
certificates creating trust relationships.
X235.2 Negotiation of promissory
notes. Negotiable promissory notes
acquired by banks in connection with their
quasi-banking functions shall not be
negotiated by mere indorsements and/or
delivery, if they do not conform with the
minimum features prescribed under
Subsec. X235.3. If these notes do not
contain the features, their negotiation shall
be covered by any of the appropriate deposit
substitute instruments above-mentioned.
X235.3 Minimum features. Deposit
substitute instruments issued by entities
performing quasi-banking functions shall
have the following minimum features:
a. The present value and maturity
value and/or the principal amount and
interest rate and such other information as
may be necessary to enable the parties to
determine the cost or yield of the borrowing
or placement shall be specified.
b. The date of issuance shall be
indicated at the upper right corner of the
instrument, and directly below which shall
be the maturity period or the word
demand, if it is a demand instrument.
Part II - Page 18
c. The payee may be identified by his

trust account/deposit account number in
both negotiable and non-negotiable
instruments.
d. Securities which are the subject of
a repo agreement or a certificate of
assignment/participation with recourse,
shall be particularly described on the face
of said instruments or on a separate
instrument attached and specifically
referred to therein and made an integral
part thereof as to the maker, value,
maturity, serial number, and such other
particulars as shall clearly identify the
securities.
e. The instrument shall provide for the
payment of liquidated damages, in addition
to stipulated interest, in case of default by
the maker or issuer, as well as attorneys
fees and costs of collection in case of suit.
f. A conspicuous notice at the lower
center margin of the face of the instrument
that the transaction is not insured by the
PDIC shall be indicated.
g. The corporate name of the issuer
shall be printed at the upper center margin
of the instrument and directly below which
shall be a designation of the instrument,
such as Promissory Note or Repurchase
Agreement.
h. The words duly authorized
officer shall be placed directly below the
signature of the person signing for the
maker or issuer.
i. Each instrument shall be serially
pre-numbered.
j. The copy delivered to the payee
shall bear the word Original and the
copies retained by the issuer shall be
identified as Duplicate, File Copy or
words of similar import.
k. Only security paper with adequate
safeguards against alteration or falsification
shall be used.
Borrowings of banks from the loans and
discounts window of other banks or
non-bank financial intermediaries shall be
X235.3
05.12.31
exempted from the documentation

requirements prescribed in this Subsection:
Provided, That the exemption from the
documentation requirements prescribed in
this Subsection shall not be construed or
interpreted as exempting said borrowings
from other regulations standardizing
deposit substitute instruments and from
other BSP regulations on deposit
substitutes.
Deposit substitute instruments shall

conform to the language prescribed by the
BSP. Any substantial deviation therefrom
or any additional stipulation therein shall
be referred to the BSP for prior approval.
The size and appearance of these
instruments, shall not be similar to the size
and appearance of these instruments, shall
not be similar to the size and appearance
of checks. Rubber stamping, typewriting or
(Next Page is Part II - Page 19)
Part II - Page 18a
X235.3 - X235.5
07.12.31
handwriting some provisions shall not be

considered compliance with said
regulations. (Shown in Appendix 12 are the
samples of standardized instruments as
evidence of deposit substitute liabilities.)
X235.4 Interbank loan transactions
Except for interbank loan transactions
evidenced by interbank loan advice or
repayment transfer tickets settled thru the
DDAs with the BSP, all interbank loan
transactions shall be evidenced by a
promissory note containing the minimum
features prescribed in Subsec. X235.3.
X235.5 Delivery of securities 1
a. Securities, warehouse receipts,
quedans and other documents of title
which are the subject of quasi-banking
functions, such as repurchase agreements,
shall be physically delivered, if certificated,
to a BSP accredited custodian that is
mutually acceptable to the lender/
purchaser and borrower/seller, or by means
of book-entry transfer to the appropriate
securities account of the BSP accredited
custodian in a registry for said securities, if
immobilized or dematerialized while the
overlying principal borrowing instrument
shall be physically delivered to the lender/
purchaser. The custodian shall hold the
securities in the name of the borrower/
seller, but shall keep said securities
segregated from the regular securities
account of the borrower/seller if the
borrower/seller has an existing securities
account with the custodian: Provided,
That a bank/other entity authorized by
the BSP to perform custodianship
function may not be allowed to be
custodian of securities issued or owned
by said bank/entity, its subsidiaries or
affiliates, or of securities in bearer form.
The delivery shall be effected upon
payment and shall be evidenced by a
securities delivery receipt duly signed by
authorized officers of the custodian and
1
delivered to both the lender/purchaser and

seller/borrower.
Sanctions. Violation of any provision
of Item a shall be subject to the following
sanctions/penalties:
First Offense Fine of P10,000 a day
for each violation reckoned from the date
the violation was committed up to the date
it was corrected.
Subsequent offenses Fine of P20,000
a day for each violation reckoned from the
date the violation was committed up to the
date it was corrected.
(2) Other sanctions
First offense Reprimand for the
directors/officers responsible for the
violation.
Subsequent offense
(a) Suspension for ninety (90) days
without pay of directors/officers
responsible for the violation;
(b) Suspension or revocation of the
accreditation to perform custodianship
function;
(c) Suspension or revocation of the
function; and/or
(d) Suspension or revocation of the
authority to engage in trust and other
fiduciary business.
b. The guidelines to implement the
delivery by the seller of securities to the
buyer or to his designated third party
custodian are shown in Appendix 68.
The disposition of compliance issues of
Appendix 68 is shown in Appendix 68a.
The guidelines on the delivery of
government securities to the investors
principal securities account with the
Registry of Scripless Securities (RoSS) are
in Appendix 68b.
Sanctions. Without prejudice to the
penal and administrative sanctions
provided for under Sections 36 and 37,
respectively of R.A. No. 7653 (The New
Central Bank Act), violation of any provision
Amendments under Circular 392 dated 23 July 2003 shall take effect on 01 January 2005 for all securities transactions,
regardless of the date of their execution under Circular 460 dated 12 November 2004.
Part II - Page 19
X235.5 - X235.12
07.12.31
of the guidelines in Appendix 68 shall be

subject to the following sanctions/penalties
depending on the gravity of the offense:
(a) First offense
(1) Fine of up to P10,000 a day for
the institution for each violation reckoned
from the date the violation was committed
up to the date it was corrected; and
(2) Reprimand for the directors/officers
responsible for the violation.
(b) Second offense (1) Fine of up to P20,000 a day for the
institution for each violation reckoned from
the date the violation was committed up
to the date it was corrected; and
(2) Suspension for ninety (90) days
without pay of directors/officers responsible
for the violation.
(c) Subsequent offenses
(1) Fine of up to P30,000 a day for the
institution for each violation from the date
it was corrected;
(2) Suspension or revocation of the
authority to act as securities custodian and/
or registry; and
(3) Suspension for 120 days without
pay of the directors/officers responsible for
the violation.
(As amended by M-2007-002 dated 23 January 2007,
M-2006-009 dated 06 July 2006, M-2006-002 dated 05 June
2006 and Circular No. 524 dated 31 March 2006)
X235.6 Other rules and regulations

governing the issuance and treatment of
deposit substitute instruments
a. If there is any stipulation that
payment of the deposit substitute shall be
chargeable against a particular deposit
account, it shall further provide that the
liability of the maker or issuer of the
instrument shall not be limited to the
outstanding balance of said account.
b. Any agreement allowing the issuer
or maker to substitute the underlying
securities shall further provide that the
Part II - Page 20
actual substitution shall be with the prior

written consent of the payee.
c. Automatic renewal upon maturity
of the instrument may be effected only
under terms and conditions previously
stipulated by the parties.
d. Stipulations between the maker or
issuer and the payee which are embodied
in separate instruments shall be specifically
referred to in the deposit substitute
instruments and made an integral part
thereof.
e. In the case of repurchase
agreements and certificates of assignment/
participation with recourse, the stipulation
shall clearly state either (1) that the
underlying securities are being delivered
to the buyer or assignee as collaterals or
(2) that the ownership thereof is being
transferred to the buyer or assignee.
X235.7 - X235.11 (Reserved)
X235.12 Repurchase agreements
covering government securities,
commercial papers and other negotiable
and non-negotiable securities or
instruments. The following regulations
shall govern repurchase agreements
covering
government
securities,
instruments of banks as well as sale on a
without recourse basis of said securities by
banks.
a. Proper
recording
and
documentation of repurchase agreements.
Banks shall have a true and accurate
account, record or statement of their daily
transactions. As such, repurchase
agreements covering government
securities, commercial papers and other
negotiable and non-negotiable securities or
instruments must be properly recorded and
documented in accordance with existing
BSP regulations.
X235.12
05.12.31
The absence of proper documentation

for repurchase agreements is tantamount
to willful omission of entries relevant to
any transaction, which shall be a ground
for the imposition of administrative
sanctions and the disqualification from
office of any director or officer responsible
therefor under existing laws and
regulations.
b. Responsibilities of the chief
executive officer (CEO) or officer of
equivalent rank.
It shall be the responsibility of the CEO
or the officer of equivalent rank in a bank to:
(1) Institute policies and procedures to
prevent undocumented or improperly
documented repurchase agreements
covering
government
securities,
and non-negotiable securities or instruments;
(2) Submit a notarized certification at
the end of every semester that the bank
did not enter into any repurchase

agreement covering government securities,
instruments that are not documented in
accordance with existing BSP regulations
and that the bank has strictly complied with
the pertinent rules of the SEC and the BSP
on the proper sale of securities to the public
and
performed
the
necessary
representations and disclosures on the
securities particularly the following:
(a) Informed the clients that such
securities are not deposits and as such, do
not benefit from any insurance otherwise
applicable to deposits such as, but not
limited to, R.A. No. 3591, as amended,
otherwise known as the PDIC law;
(b) Informed and explained to the
client all the basic features of the security
being sold on a without recourse basis,
such as but not limited to:
(Next page is Part II- Page 21)
Part II - Page 20a
X235.12
05.12.31
(i)
issuer and its financial condition;
(ii) term and maturity date;
(iii) applicable interest rate and its
computation;
(iv) tax features (whether taxable, tax
paid or tax-exempt);
(v) risk factors and investment
considerations;
(vi) liquidity feature of the instrument:
(aa) procedures for selling the security
in the secondary market (e.g., OTC or
exchange);
(bb) authorized selling agents; and
(cc) minimum selling lots.
(vii) disposition of the security:
(aa) registry (address and contact
numbers);
(bb) functions of the registry; and
(cc) pertinent registry rules and
procedures.
(viii) collecting and paying agent of the
interest and principal; and
(ix) other pertinent terms and
conditions of the security and if possible, a
copy of the prospectus or information sheet
of the security.
(c) Informed the client that pursuant
to Subsecs. X235.5 and X238.1:
(i)
Securities sold under repurchase
agreements shall be physically delivered,
if certificated, to a BSP accredited custodian
that is mutually acceptable to the client and
the bank, or by means of book-entry transfer
to the appropriate securities account of the
BSP accredited custodian in a registry for
said securities, if immobilized or
dematerialized; and
(ii) Securities sold on a without
recourse basis are required to be delivered
physically to the purchaser, or to his
designated custodian duly accredited by
the BSP, if certificated, or by means of
book-entry transfer to the appropriate
securities account of the purchaser or his
designated custodian in a registry for said
securities
if
immobilized
or
dematerialized.
(d) Clearly stated to the client that:

(i) The bank does not guarantee the
payment of the security sold on a without
recourse basis and in the event of default
by the issuer, the sole credit risk shall be
borne by the client; and
(ii) The bank is not performing any
advisory or fiduciary function.
(3) Report to the appropriate SED of the
BSP any undocumented repurchase
agreement within seventy-two (72) hours
from knowledge of such transactions.
c. Treatment as Deposit Substitutes.
All sales of government securities,
commercial papers and other negotiable and
non-negotiable securities or instruments that
are not documented in accordance with
existing BSP regulations shall be deemed
to be deposit substitutes subject to regular
reserves.
d. Certification. The submission
deadline for the required certification from
the CEO/officer of equivalent rank of the
bank shall initially be 1 February 2005 using
the format attached as Annex A of Appendix
65. Thereafter, the required succeeding
certification shall be submitted within five
(5) banking days from end of reference
semester using the format attached as
Appendix 65.
e. Sanctions. The Monetary Board
may, at its evaluation and discretion, impose
any or all of the following sanctions to a
bank or the director/s or officer/s found to
be responsible for repurchase agreements
covering government securities, commercial
papers and other negotiable and nonnegotiable securities or instruments that are
not documented in accordance with existing
BSP regulations:
(1) Fine of up to P30,000 a day to the
concerned entity for each violation from the
date it was corrected;
(2) Suspension of interbank clearing
clearing;
Part II - Page 21
X235.12 - X237.2
05.12.31
(3) Suspension of access to BSP

(4) Suspension of lending or foreign
exchange operations or authority to accept
new deposits or make new investments;
(5) Revocation of quasi-banking license;
(6) Revocation of authority to perform
trust operations; and
(7) Suspension for one hundred twenty
(120) days without pay of the directors/
officers responsible for the violation.
Sec. X236 Minimum Trading Lot and
Minimum Term of Deposit Substitute
a. The minimum size of any single
deposit substitute transaction shall be
P50,000.
No bank performing quasi-banking
functions shall issue deposit substitute
instruments in the name of two (2) or more
persons or accounts except those falling
under the following relationships in which
cases, commingling may be allowed: (a)
husband and wife; (b) persons related to
each other within the second degree of
consanguinity; and (c) in trust for (ITF)
arrangements.
b. The minimum term of any single
deposit substitute transaction shall be
fifteen (15) days except interbank
borrowings, which shall not be subject to
this limitation.
Sec. X237 Money Market Placements of
Rural Banks. Banks shall not accept
money market placements from any RB
unless the latter presents a certification
under oath stating: (a) that it has no overdue
special time deposits; (b) that it has no past
due obligations with the BSP or other
government financial institutions; (c) the
amount of its current obligations, if any,
with said government financial institutions;
and (d) the amount of its total outstanding
money market placements. However, in
no case shall such banks sell receivables
to RBs without recourse.
Part II - Page 22
X237.1 Definition of terms. As used

in this Section, the following terms shall
have the following meanings:
a. Money market placements shall
include investments in debt instruments,
including purchase of receivables with
recourse to the lending institution, except
purchase of government securities on an
outright basis.
b. Government securities shall include
evidences of indebtedness of the Republic
of the Philippines, the BSP and other
evidences of indebtedness or obligations of
government entities the servicing and
repayment of which are fully guaranteed by
the Republic of the Philippines.
c. Persistent violation shall mean the
violation of any of the provisions of these
rules by the director or officer concerned
for four (4) or more times within a twelve
(12)-month period from the date the first
offense was committed.
X237.2 Conditions required on
accepted placements not covered by
prohibition. Placements accepted which
are otherwise not covered by the above
prohibition must comply with the
a. That total money market placements
of an RB as stated in the certification,
including the placement being accepted by
the entity concerned, shall not exceed the
RBs combined capital accounts or net worth
less current obligations with the BSP or other
government financial entities;
b. The maturity of the money market
placement shall not exceed sixty (60) days;
and
c. That placements shall be evidenced
in all cases by promissory notes of
acceptingentities/repurchase agreements
and/or certificates of participation/
assignment with recourse and that
underlying instruments shall be certificates
of indebtedness issued by the BSP or other
government securities the servicing and
X237.2 - X238.1
07.12.31
repayment of which are guaranteed by the

Republic of the Philippines.
X237.3 Sanctions. Violations of the
provisions of this Section shall be subject
to the following sanctions/penalties:
a. Monetary penalties
First offense - Fines of P3,000 a day,
reckoned from the date placement started
up to the date when said placement was
withdrawn, for each violation shall be
assessed on the bank.
Subsequent offenses - Fines of P5,000 a
day, reckoned from the date placement
started up to the date placement was
withdrawn, for each violation shall be
assessed on the bank.
b. Other sanctions
First offense - Reprimand for the
directors/officers who approved the
acceptance/placement with a warning that
subsequent violations will be subject to
more severe sanctions.
Subsequent offenses (1) Suspension for ninety (90) days
without pay for directors/officers who
approved the placement.
functions.
Sec. X238 Without Recourse Transactions
No bank shall sell, discount, assign, or
negotiate, in whole or in part, such as thru
syndications, participations and other
similar arrangements, any notes,
receivables, loans, debt instruments and
any type of financial asset or claim, except
government securities, or be a party in any
capacity in any of the above transactions,
on a without recourse basis unless such
receivables, notes, loans, debt instruments
and financial assets or claims are registered
with the SEC. This prohibition includes
transactions between a bank and its trust
department.
Unregistered commercial papers may

be sold, discounted, assigned, or
negotiated by banks to the following:
a. other banks;
b. QBs;
c. IHs;
d. insurance companies;
e. finance companies;
f. investment companies;
g. pension or retirement plan
maintained by the government of the
Philippines or any political subdivision
thereof or managed by a bank or other
persons authorized by the Bangko Sentral
to engage in trust functions;
h. funds managed by another bank or
other entities duly authorized to engage in
trust or other fiduciary business; and
i. such other person as the SEC may by
rule determine as qualified buyers, on the
basis of such factors as financial
sophistication, net worth, knowledge, and
experience in financial and business matters,
or amount of assets under management.
X238.1 Delivery of securities1
a. Securities sold on a without
recourse basis allowed under Sec. X238 shall
be delivered physically to the purchaser, or
to his designated custodian duly accredited
by the BSP, if certificated, or by means of
book-entry transfer to the appropriate
designated custodian in a registry for said
securities, if immobilized or dematerialized,
while the confirmation of sale or document
of conveyance by the seller shall be physically
delivered to the purchaser. The custodian shall
hold the securities in the name of the buyer:
Provided, That a bank/other entity authorized
by the BSP to perform custodianship function
may not be allowed to be custodian of
securities issued or sold on a without
recourse basis by said bank/entity, its
subsidiaries or affiliates, or of securities in
bearer form.
Effective 01 January 2005 under Circular 460 dated 12 November 2004.
Part II - Page 23
X238.1 - X238.3
07.12.31
The delivery shall be effected upon

payment and shall be evidenced by a
securities delivery receipt duly signed by
the authorized officer of the custodian and
delivered to the purchaser.
Sanctions. Violation of any provisions
of Item a shall be subject to the following
sanctions/penalties:
First offense Fine of P10,000 a day
for each violation reckoned from the date
it was corrected.
Subsequent offenses Fine of P20,000
a day for each violation reckoned from the
date it was corrected.
(2) Other sanctions
First offense Reprimand for the
directors/officers responsible for the violation.
Subsequent offense
(a) Suspension for ninety (90) days
for the violation;
accreditation to perform custodianship
function;
(c) Suspension or revocation of the
function; and/or
(d) Suspension or revocation of the
fiduciary business.
b. The guidelines to implement the
Sanctions. Violation of any provision
of the guidelines in Appendix 68 shall be
subject to the sanctions/penalties under
Item b of Subsec. X235.5.
(As amended by M-2007-002 dated 23 January 2007, M-2006009 dated 06 July 2006 and M-2006-002 dated 05 June 2006,
Circular No. 524 dated 31 March 2006)
X238.2 Sanctions. Unless specific

sanctions are prescribed under these rules,
any violation of the provisions of this
Part II - Page 24
Section shall be subject to any or all of the

a. Suspension of quasi-banking
authority for a period of six (6) months;
and
b. Monetary penalty of P500 per day
per transaction for each officer of the bank
involved in any capacity in any transaction
violative of these regulations.
X238.3 Securities custodianship
operations
a. Securities sold on a without
recourse basis shall be delivered to the
purchaser, or to his designated custodian
duly accredited by the BSP: Provided, That
a bank/other entity authorized by the BSP
to perform custodianship function may not
be allowed to be custodian of securities
issued or sold on a without recourse basis
by said bank/entity, its subsidiaries or
affiliates, or of securities in bearer form.
Existing securities being held under
custodianship by banks/other entities
under BSP supervision, which are not in
accordance with said regulation, must
therefore, be delivered to a BSP accredited
third party custodian. However, banks and
other FIs under BSP supervision may
maintain custody of existing securities of
their clients who are unable or unwilling
to take delivery pursuant to the provisions
of Subsec. X235.5 but who declined to
deliver their existing securities to a BSP
accredited third party custodian subject to
(1) the custody arrangements with
clients have been in existence prior to 05
November 2004 (effectivity of Circular 457
dated 14 October 2004);
(2) the dealing bank/NBFI under BSP
supervision had been informed in writing
by the client that he is not willing to have
his existing securities delivered to a third
party custodian;
(3) any BSP regulated institution shall
not enter into securities transactions with
a client who has outstanding securities not
X238.3 - X239.4
06.12.31
delivered to a BSP accredited third party

custodian; and
(4) it shall be the responsibility of any
BSP regulated institution to satisfy itself that
the person purchasing securities from it has
no outstanding securities holdings which
were not delivered to a BSP accredited third
party custodian.
penal and administrative sanctions
respectively, of the R.A. No. 7653,
violation of any provision of this Subsection
shall be subject to the following sanctions/
penalties:
(1) First Offense
(a) Fine of up to P10,000 a day for the
(b) Reprimand for the directors/officers
(2) Second Offense (a) Fine of up to P20,000 a day for the
(b) Suspension for ninety (90) days
without pay of directors/officers
(3) Subsequent Offenses
it was corrected;
or registry; and
(c) Suspension for 120 days without
pay of the directors/officers responsible for
the violation.
b. Sec. X441 shall also govern the
securities custodianship and securities
registries of banks.
(As amended by M-2006-009 dated 06 July 2006, M-2006002 dated 05 June 2006 and Circular No. 524 dated 31
March 2006)
Sec. X239 Issuance of Bonds. The

following guidelines shall govern the
issuance of bonds by banks with quasibanking authority.
X239.1 Definition of terms. For
purposes of this Section, unless the context
clearly indicates otherwise, the following
shall have the meaning as indicated:
a. Government securities shall refer
to evidences of indebtedness of the
Republic of the Philippines or its
instrumentalities, or of the BSP, and must
be freely negotiable and regularly
serviced.
b. Net book value shall refer to the
acquisition cost of property or accounts
plus additions and improvements thereon
less valuation reserves, if any.
c. Current market value shall refer to
the value of the property as established
by a duly licensed and independent
appraiser.
X239.2 Compliance with Securities
and Exchange Commission rules on
registration of bond issues. All banks with
quasi-banking authority issuing or
intending to issue bonds shall comply with
the New Rules on Registration of LongTerm Commercial Papers promulgated by
the SEC (Appendix 13).
X239.3 Notice to Bangko Sentral ng
Pilipinas. Within three (3) days from
approval by SEC of its bond issue, the bank
concerned shall notify the appropriate
department of the SES of the approval
attaching thereto the documents required
by the SEC for the issuance and registration
of the bond issue.
X239.4 Minimum features. Bonds
issued by banks shall have the following
minimum features:
a. Form; issue price; denomination
The trust indenture and the name of the
Part II - Page 25
X239.4 - X240
05.12.31
indenture trustee shall be indicated on the

face of the bond certificate.
The SEC-assigned bond registration
number and expiry date, if any, shall
likewise be indicated, stamped on the face
of each bond certificate issued.
Bonds may be issued at face value, at a
discount or at a premium. Minimum
denomination shall be P20,000.
b. Term - The minimum term of the
bonds shall be four (4) years. No optional
redemption before the fourth year shall be
allowed.
c. Interest; manner; form of payment
The bonds shall not be subject to interest
rate ceilings prescribed by the Monetary
Board or Act No. 2655, as amended.
d. Trust indenture; collaterals; sinking
fund - A trust indenture shall be executed
between the issuer and a qualified trust
corporation as trustee, which shall neither
be an affiliate nor a subsidiary of the
issuer.
The following shall be deemed as
eligible collateral and shall be maintained
at respective values indicated in relation
to the face value of the bond issue:
shall be allowed: Provided, That in no case

shall the collateral fall below the herein
required ratios.
The issuer may, at his option, provide
for the retirement at maturity of the bond
issue through the sinking fund to be
deposited with and managed by the
indenture trustee.
e. Bond registry - The bonds shall be
fully registered as to principal and interest.
The issuer, its trustee, agent or underwriter
must maintain a bond registry duly
approved by the SEC for recording initial
and subsequent transfers the names of
transferees, date of transfer, purchase price
and serial numbers of bonds transferred.
(1) Government
securities
Sec. X240 Statement of Policy. As a

general policy, cash balances of the
Government, its political subdivisions and
instrumentalities as well as of governmentowned or controlled corporations shall be
deposited with the BSP, with only
minimum working balances to be held by
government-owned banks and such other
banks incorporated in the Philippines as
the Monetary Board may designate:
Provided, That such banks may be
authorized by the Monetary Board to hold
deposits of the political subdivisions and
instrumentalities of the Government beyond
their minimum working balances whenever
such subdivisions and instrumentalities
have outstanding loans with said banks.
For purposes of this Section:
a. The term government-owned orcontrolled corporations shall refer to
(2) Readily marketable private securities

listed in the big board
of stock exchanges
(3) Real estate
(4) Unmatured
receivables acquired
with recourse
(5) Unmatured
receivables acquired
without recourse
Aggregate
current
market value
of 100%
Aggregate
current
market value
of 150%
Net book
value of 100%
Net book
value of 150%
Net book
value of 200%
Government and private securities,

certificates of title and documents
evidencing receivables offered as security
shall be physically delivered to the
indenture trustee. Substitution of collaterals
Part II - Page 26
X239.5 Issuance of commercial

papers. The issuance of other forms of
commercial papers by banks with quasibanking authority shall be subject to the
new rules on registration of short-term and
long-term commercial papers appended
hereto as Appendices 13 and 14.
F. GOVERNMENT DEPOSITS
X240 - X240.2
05.12.31
corporations which are created by special
laws. It shall exclude government FIs such
as DBP, LBP and Al-Amanah Islamic
Investment Bank of the Philippines,
corporations which are created under the
provisions of the Corporation Law (Act No.
1459, as amended) or the Corporation
Code (BP Blg. 68) and private corporations
which are taken over by governmentowned or-controlled corporations.
b. Minimum working balances
shall represent the minimum amounts
necessary to enable the government
instrumentality/political subdivision
making the deposit to transact business
efficiently and effectively as determined by
the Department of Finance.
approval. No private bank shall, without
accept, as depository, any fund or money
from the Government, its political
subdivisions and instrumentalities, and
government-owned
or-controlled
corporations; nor shall a private bank borrow
any fund or money there from, through the
issuance or sale of its acceptances, notes
or other evidences of indebtedness.
X240.2 Banks which may accept
government funds
a. Banks, the majority of the capital
of which is owned by the Government,
may act as depository of funds of the
Government, its political subdivisions and
instrumentalities, and government-owned
or-controlled corporations.
b. Private banks incorporated in the
Philippines may act as depository of
government funds only with the prior
approval of the BSP. Local government
units may maintain depository accounts
preferably in government banks and, in
exceptional cases and with the prior
approval of the Monetary Board, in the
name of their respective government units,

in private banks located in or nearest to
their respective areas of jurisdiction but the
depository bank(s) must also seek the prior
approval of the BSP: Provided, That a TB/
RB/Coop Bank may only act as official
depository of government funds pursuant
to R.A. Nos. 7906, 7353 and 6938, as
follows:
(1) a TB may only act as official
depository of national agencies, and of
municipal, city or provincial funds in the
municipality, city or province where the
TB is located;
(2) an RB may only act as official
depository of municipal, city or provincial
funds in the municipality, city or province
where the RB is located; and
(3) a Coop Bank may accept deposits
of all government departments, agencies
and units of the national and local
governments including governmentowned or-controlled corporations.
c. Where there is no government
bank or BSP office in the province and the
nearest government bank or BSP office is
inaccessible by ordinary transportation, or
transporting/withdrawing the government
deposits to and from the said office is
impractical or risky, the province, as well
as cities and municipalities located therein,
may seek approval of the Monetary Board
to consider all their funds eligible for
deposits with a qualified private depository
bank within the province, city or
municipality, as the case may be.
d. Banks acting as official depository
of government funds may accept demand,
savings or time deposits.
e. The authority of a bank to accept
government deposits does not obligate the
Government, its subdivisions and
instrumentalities and government-owned
or-controlled corporations to deposit with
that bank. Thus, even if a TB or RB is
authorized by the Monetary Board to
accept government deposits, a
Part II - Page 27
X240.2 - X240.5
06.12.31
municipality is not obligated to deposit

with that TB or RB. Similarly, a bank which
is authorized to accept deposits of the
Government or a government corporation
because of outstanding loans granted by
the bank cannot demand as a matter of right
that the Government or government
corporation make deposits unless there is
a stipulation in the loan agreement.
of authority to accept deposits from the
Government and government entities. In
addition to the Standard Pre-qualification
Requirements for the Grant of Banking
Authorities enumerated in Appendix 5,
private banks applying for authority to
accept deposits from the Government, its
subdivisions and instrumentalities and
government-owned
or-controlled
corporations and government banks
applying for authority to accept
government deposits in excess of
minimum working balances shall also
comply with the following conditions:
a. The applicant bank must have
complied with the minimum capital
required under Subsecs. X106.1 and
X106.2; and
b. It must be a member of the PDIC
in good standing.
c. The banks CAMELS composite
rating in its latest examination is not lower
than three (3) with Management
component score of not lower than three
(3).
X240.4 Application for authority. An

application for authority to accept
government deposits shall be signed by the
president of the bank and shall be filed with
the appropriate department of the SES. The
application shall be accompanied by a
certification by the bank president or
executive vice-president that the bank has
complied with all the requirements
Part II - Page 28
Banks authorized to accept

government funds as depository shall
continuously comply with the conditions
enumerated under Subsec. X240.3 even
after the authority to accept government
deposits has been granted and during the
period while the banks actually hold
government deposits, otherwise, any
violation may be a basis for the imposition
of sanctions against the bank, its directors
and officers, or revocation of the authority
to accept government deposits.
Deposits maintained by the
Government, its subdivisions and
instrumentalities and government-owned
or-controlled corporations shall be
supported by the following documents
whenever applicable:
a. A copy of the resolution of the
barangay, municipal or city council
(Sangguniang Bayan/Panglunsod) or the
provincial
board
(Sangguniang
Panlalawigan) authorizing the deposit of
municipal, city or provincial funds;
b. A copy of the resolution of the
board of directors of the governmentowned or-controlled corporations
authorizing the deposit of funds of said
corporations; or
c. In case of the National
Government, its unincorporated branches,
agencies and instrumentalities, a written
authority to deposit government funds
signed by the duly authorized official of
the department, agency, office or unit
making the deposit.
The resolution or authority should state
the name and location of the depository
bank, type and terms of the deposit, and
that the amount to be deposited represents
working balances.
X240.5 Limits on funds of the
Government and government entities
that may be deposited with banks
a. Funds of the Government, its
subdivisions and instrumentalities and
government-owned
or-controlled
X240.5 - X240.6
07.12.31
corporation, deposited with banks

authorized to receive deposits shall be
limited to the minimum working balance
of the depositor.
With prior Monetary Board approval,
government or private banks may be
authorized to accept amounts in excess
of minimum working balances if the
Government or government entity
making the deposit has outstanding loan
obligations to the depository bank but
such amounts shall not exceed the
amount of its outstanding loan obligations
to the depository bank. The amount of
non-transferable and non-negotiable
government securities with market or
below market interest rate at the time of
issue, issued by the National Government
to the depository bank shall be considered
as outstanding loans of the National
Government to said bank within the
meaning of Section 113 of R.A. No. 7653.
b. The aggregate amount of
government funds which a private bank
can hold at any given time shall not exceed
200% of the banks net worth.
c. Where any director, officer or
stockholder of a private bank, as defined
under Subsec. X326.1, is also an elective
or appointive official of a municipality, city
or province, said bank is prohibited from
accepting deposits from said municipality,
city or province unless it is the only bank
existing therein: Provided, That this
provision shall not be construed as a grant
of authority to such elective or appointive
public official to act as director or officer
of a private bank.
X240.6 Liquidity floor. Unless
otherwise prescribed by the Monetary
Board, authorized government depository
banks other than the BSP, and authorized
private banks shall, inclusive of the required
reserves against deposits and/or deposit
substitutes, maintain a fifty percent (50%)
liquidity floor with respect to deposits of,
borrowings from, and all other liabilities

to, the Government and government
entities, in the form of transferable
government securities which represent
direct obligations of the National
Government.
Government securities representing
direct obligations of the National
Government regardless of maturity, issued
pursuant to the provisions of R.A. No. 245,
as amended by P.D. No. 142, which are
not otherwise earmarked or used as part of
other reserve requirements of the BSP, shall
be eligible as liquidity reserves.
Securities received pursuant to the
Domestic Debt Exchange Offer of the
Republic of the Philippines in exchange
for securities that are eligible reserves for
liquidity floor requirement shall, likewise
be eligible as liquidity reserves.
Eligible securities being used as such
reserve shall not in any way be encumbered
or be subject to any transaction without
prior approval of the BSP.
Also eligible for liquidity floor are the
following:
a. The free portion of the Due from
Bangko Sentral - Local Currency after
satisfying the legal and other reserve
requirements; and
b. NDC Agri-Agra ERAP Bonds,
which are not being used as alternative
compliance with PD 717. Such bonds shall
not in any way be encumbered or be
subject to any transaction without prior
c. Securities backed by the
unreleased Internal Revenue Allotments
(IRA) of local government units (issued by
a Special Purpose Trust administered by
the DBP under the IRA Monetization
Program of the Union of Local Authorities
of the Philippines) the release of which IRA
on scheduled date of payment has been
certified by the Department of Budget
Management (DBM) as not being subject
to any conditionalities: Provided, That such
Part II - Page 29
X240.6 - X240.9
07.12.31
securities shall be eligible only to the extent

of the present value of the bond computed
using the original yield to maturity (as of
auction/issue date).
d. Tobacco Excise Tax Receivables
Monetization Program Investment
Certificates (TEXTR Certificates) backed by
receivables representing the unreleased
portion of the obligation of the National
Government to its LGU for their share of
the Tobacco Excise Taxes under R.A. No.
7171 amounting to P1.85 billion and
covering the years 2001 and 2002:
Provided, That such securities shall be
eligible only to the extent of the present value
of the securities computed using the original
yield to maturity as of auction/issue date.
e. Placement of banks in their SDA
with the BSP, effective 10 May 2007.
For purposes of computing the fifty
percent (50%) liquidity floor requirement
on all government funds held by authorized
banks, banks shall adopt a one (1)-week lag
system, effective 04 May 2001.
Banks authorized to accept government
deposits shall specify in the prescribed
reports submitted to the SDC of the BSP
the balance of government deposits
subject to liquidity floor requirement and,
if any, the corresponding GS earmarked
for subject purpose.
(As amended by Circular Nos. 566 dated 03 May 2007 and
509 dated 01 February 2006)
X240.7 Exempt transactions. The

following deposits of, borrowings from and/
or liabilities to, the Government and
government entities shall be exempt from
the liquidity floor:
a. Obligations to the BSP arising from
rediscounting facilities and sale of
government securities under repo
agreements made in connection with the
provisions of Sec. X269 and Subsec. X601.1;
b. Special time deposits (STDs) and
deposit substitutes under the special
financing program of the Government
and/or international FIs;
Part II - Page 30
c. Obligations to the BSP consisting

of emergency advances, overdraft
facilities, and those arising from peso swap
differentials and supervision and
examination fees;
d. Marginal deposits on importations;
e. Due to the Treasurer of the
Philippines (unclaimed deposit balances);
f. Funds held by participating
financial institutions (PFIs) under the GSIS
Housing Loan Programs: Provided, That the
agreement between GSIS and the conduit
banks specify that such funds may be held
by the conduit banks for a period of not
more than seven (7) calendar days prior
to their release to the borrower and prior
to the remittance by the conduit banks of
payment to the GSIS;
g. Deposits of the BIR and BOC; and
h. Any other form of deposits,
borrowings and/or liabilities specifically
authorized by law or exempted by the
Monetary Board.
X240.8 Reports. Banks shall submit
to the appropriate department of the SES a
report of their government deposits from
all sources in the aggregate in the
prescribed form.
this Section shall be a ground for the
imposition of the following sanctions:
a. The deposit account with the BSP
of the bank concerned shall be debited
by the Accounting Department of the BSP
in the amount of the unauthorized deposit
or borrowing upon receipt of a report or
notice from the appropriate department
of the SES and the deposit account of the
government institutions with the BSP shall
be credited for the same amount. A copy
of said report or notice of the SES shall be
furnished each to the bank concerned and
the government institutions.
b. The withdrawal of previously
granted authority to accept government
funds;
X240.9 - X242.2
05.12.31
c. Without prejudice to the sanctions

under Section 35 of R.A. No. 7653, the
following administrative sanctions shall be
imposed if any part of the certification as
required in this Section is found to be false
or misleading:
On the bank - Cancellation of the
authority to accept government deposits if
one has already been granted and/or
disqualification to act as a government
depository for not more than one (1) year.
On the certifying officer - A fine of
P5,000 per day from the time the
certification was found to be false, for each
application filed with the BSP.
d. Any bank with deficiency in the
required liquidity floor against deposits of,
and/or borrowings from, the Government
and government entities or with excess
holdings of such deposits shall: (1) be
denied the credit facilities of the BSP; and
(2) if the deficiency lasts for four (4)
consecutive weeks, the bank shall be
prohibited from declaring cash dividends
and making new loans and investments,
except investments in government
securities. The prohibition shall be lifted
by the Governor of the BSP, upon
certification by the appropriate department
of the SES that the bank has had no
deficiency in its liquidity floor and no
excess holdings of government deposits
for at least four (4) consecutive weeks.
X240.10 - X240.14 (Reserved)
X240.15 Acceptance by banks with
internet banking facility of payment of
fees for account of government entities
Domestic private banks with BSP-approved
internet banking facility are allowed to accept
payment of fees/other charges of similar
nature for the account of the
departments, bureaus, offices and
agencies of the government as well as
all GOCCs: Provided, That the funds so
accepted/collected shall be treated as
deposit liabilities subject to existing
regulations on government deposits and

shall not exceed the minimum working
balance of the said government entities.
These banks are required to notify the
appropriate department of the SES that
supervises the bank, copy furnished the
Head of the Technical Working Group
on E-Banking, SDC, of the names of the
government institutions that will interface
with their systems and any changes that
may subsequently be made on the
arrangements.
G. INTEREST
Sec. X242 Interest on Deposits/Deposit
Substitutes. Demand, savings, NOW
accounts, time deposits and deposit
substitutes shall not be subject to interest
ceilings.
X242.1 Time of payment of interest
on time deposits/deposit substitutes
Interest or yield on time deposit/deposit
substitute may be paid at maturity or upon
withdrawal or in advance: Provided,
however, That interest or yield paid in
advance shall not exceed the interest for
one (1) year.
X242.2 Treatment of matured time
deposits/deposit substitutes
a. A time deposit not withdrawn or
renewed on its due date shall be treated
as a savings deposit and shall earn interest
from maturity to the date of actual
withdrawal or renewal at a rate applicable
to savings deposits.
b. A deposit substitute instrument
not withdrawn or renewed on its maturity
date shall from said date become payable
on demand and shall earn an interest or
yield from maturity to actual withdrawal
or renewal at a rate applicable to a
deposit substitute with a maturity of
fifteen (15) days.
Part II - Page 31
X242.2 - X253.2
08.12.31
Banks performing quasi-banking

functions shall continue to consider
matured and unwithdrawn deposit
substitutes as such and subject to reserves.
Sec. X243 Disclosure of Effective Rates
of Interest. Banks are required to disclose
to depositors the following information on
interest computation and payments:
a. Type/kind of deposit;
b. Nominal rate of interest and period
covered;
c. Manner of interest payment, i.e.,
whether credited in advance or otherwise;
d. Basis of interest payment, i.e.,
whether based on average daily balance
compounded quarterly or otherwise;
e. Effective rate of interest expressed
as a simple annual rate, on the basis of the
information above given and indicating the
formula used to arrive at the effective rate
of interest; and
f. Illustration of basis of computing
interest on a hypothetical deposit account.
Copies of the abovementioned
information shall be made available to
each and every depositor by attaching
these copies to savings deposit
passbooks and time deposit certificates.
Posters disclosing the above information
and aggregate deposit rates shall also be
displayed conspicuously within the bank
premises.
H. RESERVES AGAINST DEPOSIT
AND DEPOSIT SUBSTITUTE
LIABILITIES
Sec. X253 Accounts Subject
to
Reserves; Amounts Required. The
following rules and regulations shall
govern the reserves against deposit and

deposit substitute liabilities.
X253.1 Regular reserves against
deposit and deposit substitute liabilities
The rates of regular reserves against
deposit and deposit substitute liabilities in
local currency of banks shall be as follows:
RBs/
UBs/KBs TBs Coop Banks
a. Demand
Deposits
8%1
b. NOW Accounts
8%
c. Savings
Deposits
8%1
d. Time Deposits,
Negotiable CTDs,
Long-Term Non8%1
Negotiable TaxExempt CTDs
Long-term NCTDs 2%
e. Deposit
Substitutes
8%
f. IBCL
0%
(Sec. X343)
g. Bonds
5%
h. Mortgage/CHM cert. NA
4%
4%
4%
4%
4%
1%
4%
1%
2%
2%
4%
0%
NA
0%
5%
5%
NA
NA
Provided, That deposit substitutes

evidenced by repo agreements covering
government securities up to the amount
equivalent to the adjusted Tier 1 capital
of the bank shall be subject to the
statutory reserve of two percent (2%)2:
Provided, further, That such rate shall
apply only to repo agreements, the
documentation of which conforms with,
and were delivered to a BSP accredited
third party custodian as required under
existing BSP regulations.
(As amended by Circular No. 632 dated 19 November 2008)
X253.2 Liquidity reserves. On top

of the regular reserve requirements,
liquidity reserves against peso demand,
Under Circular 632 dated 19 November 2008, the reduction in regular reserves shall be effective the reserve week
starting 14 November 2008.
2
The statutory reserve of two percent (2%) may not yet be availed of pending:
(a) the issuance of the pertinent market convention acceptable to BSP that shall govern deposit substitutes transactions
evidenced by repo agreements covering government securities; and
(b) the opening for the purpose of a separate RoSS account with the Bureau of the Treasury by the BSP- accredited third
party custodian.
Part II - Page 32
X253.2 - X254
08.12.31
"NOW", savings, time deposit and

deposit substitute liabilities shall be
maintained, as follows:
Liquidity
Category of Banks
Reserves
a. UBs/KBs
11%1
b. TBs
2%
c. RBs/Coop Banks
0%
The liquidity reserves for LTNCTDs
shall be 0%.
The required liquidity reserves shall be
maintained in the Reserve Deposit
Account (RDA) with the BSP, or may be in
the form of the following: Provided, That it
complies with the guidelines shown in
Appendix 71.
a. Short-term
market-yielding
government securities purchased directly
from the BSP-Treasury Department;
b. NDC Agri-Agra ERAP Bonds which
are not being used as alternative
compliance with P.D. No. 717. Such bonds
shall not in any way be encumbered or be
subject to any transaction without prior
approval of the BSP; and
c. Poverty Eradication and Alleviation
Certificates (PEACe) bonds only to the
extent of the original gross issue proceeds
determined at the time of the auction, plus
capitalized interest on the underlying
zero-coupon Treasury Notes as and when
the corresponding interest is earned over
the life of the bonds.
Any deficiency in the liquidity reserves
shall continue to be in the forms or modes
prescribed under existing regulations for
the composition of required reserves.
(As amended by Circular Nos. 632 dated 19 November 2008,
551 dated 17 November 2006 and 539 dated 09 August 2006)
Sec. X254 Composition of Reserves. The

composition of the required reserves shall
be as follows:
a. Deposits with the BSP. At least
twenty-five percent (25%) shall be in the
form of deposits with the BSP.
b. Government securities and cash

in vault. The remaining portion of the
required reserves may be held by all banks
in the form of cash in vault and/or
government securities or evidences of
indebtedness of the Republic of the
Philippines.
To support the implementation of the
provisions of Subsecs. X343.3 and X601.3,
the cash-in-vault (CIV) component of
available reserves shall be based on the
actual CIV balance outstanding one (1)
banking day lag, for purposes of computing
the reserve position of the current day.
government securities which may form
part of the reserves against deposits/
deposit substitute liabilities of banks shall
refer to bonds or other evidences of
indebtedness representing direct
obligations of the Government of the
Republic of the Philippines: Provided, That
such securities shall have the following
minimum features/conditions:
(1) The securities must bear an interest
rate of not more than four percent (4%)
per annum, must be non-negotiable and
shall carry BSP support; and
(2) The amount, maturity date and rate
of interest must be definite and stated in
the certificate itself.
Other government securities being
used for reserve purposes shall continue
to be eligible as such: Provided, That
whenever said securities shall have
matured, they shall be replaced by
securities carrying the above features.
The securities held as reserves under
Item "b" and last paragraph of Sec. X253
shall be valued at cost of acquisition and
the bank may freely alter its composition:
Provided, That any substitution or
acquisition satisfies the eligibility
requirements prescribed above: Provided,
further, That the bank notifies the BSP of
any such change in the prescribed forms
not later than the reporting day following
Under Circular 632 dated 19 November 2008, the reduction in liquidity reserves shall be effective the reserve week
starting 14 November 2008.
Part II - Page 33
X254 - X255
05.12.31
the change. Securities counted as reserves

may not be hypothecated or encumbered
in any way or earmarked for any other
purpose without automatically losing their
eligibility as reserves.
Only the buying/lending bank in an
agreement covering eligible government
securities may use such securities as reserves
against deposits/deposit substitutes.
Conversely, the selling/borrowing bank in a
resale agreement covering eligible
government securities may not use such
securities as reserves against deposits/deposit
substitutes.
The list of reserve-eligible and
non-eligible securities may be found in
Appendix 15.
The reserve eligibility of government
securities under the reverse repo operations
of the BSP shall be suspended during the term
of the reverse repo agreement.
The phrase non-reserve eligible shall be
stamped on the face of the custodian receipt
being issued by the BSP to buyer FIs.
X254.1 Allowable drawings against
reserves. Deposit with the BSP to comply
with reserve requirements are not regular
current accounts. The use, therefore, of
BSP checks for drawings against reserve
deposits shall be limited to (a) settlement
of obligations with the BSP, and
(b) withdrawals to meet cash requirements.
X254.2 Exclusion of uncleared
checks and other cash items. COCIs
which have not been cleared yet through
the Clearing Office should not be debited
to the account Due from the BSP and
should not be considered as available
reserves against deposit/deposit substitute
liabilities. Such items shall be debited to
the COCIs account.
Only after the COCIs have been
cleared through the Clearing Office can the
bank debit the Due from the BSP account
for said items.
Part II - Page 34
X254.3 Interest income on reserve

deposits. Deposits maintained by banks with
the BSP up to forty percent (40%) of the
reserve requirement (excluding the liquidity
reserve mentioned in Subsec. X253.2
against the combined deposit and deposit
substitute liabilities of banks allowed to be
maintained in the form of short-term
market yielding government securities
purchased directly from the BSP Treasury
Department) shall be paid interest at four
percent (4%) per annum based on the
average daily balance of said deposits to
be credited quarterly.
The computation of quarterly interest
payments credited to the DDAs of banks
legal reserve deposits with BSP are shown
in Appendix 54.
Effective 01 July 2003, published interest
rates that will be applied on BSPs Regular
DDAs of banks shall be inclusive of the ten
percent (10%) Value Added Tax (VAT).
X254.4 Book entry method for
reserve securities. In the implementation
of the book entry system for transactions in
government securities eligible for reserves,
transactions concerning reserve-eligible
securities shall be entered in the respective
securities account of each bank with the BSP
and shall be evidenced by securities account
debit or credit advices to be promptly
furnished the institution/s concerned. No
certificate shall be issued for any purpose.
Transactions with third parties other than the
BSP shall not be recognized.
Sec. X255 Exemptions from Reserve
Requirements. The following shall be
exempt from reserve requirements:
a. All collections credited to the
special account Due to BSP - Internal
Revenue Account (Other Cities and
Municipalities);
b. STDs from the Agrarian Reform
Fund Commission and special savings
deposits from farmer-borrowers; and
X255 - X256.5
08.12.31
c. Unclaimed balances of deposit

liabilities already reported to the Treasurer
of the Philippines in accordance with the
Unclaimed Balances Act (Act No. 3936,
as amended) and transferred/reclassified
from the deposit liability/other credit
accounts to the liability account "Due to
the Treasurer of the Philippines".
Local banks may deduct from the
amount of their gross demand deposits,
the total of their Due from Local Banks Demand and Due from PNB - Clearing
in an amount not exceeding the total of
their Demand Deposits-Banks and Due
to Local Banks. As used herein, the term
gross demand deposits shall mean the
sum of all individual deposits, including
deposits made by other local banks, the
Philippine Government, its political
subdivisions and instrumentalities, and
GOCCs.
Sec. X256 Computation of Reserve
Position. The reserve position of any bank
and the penalty on reserve deficiency shall
be computed based on a seven (7)-day
week, starting Friday and ending
Thursday, including Saturdays, Sundays,
public special/legal holidays, non-banking
days, unexpected declared non-banking
days or declared half-day holidays and days
when there is no clearing: Provided, That
with reference to public special/legal
holidays, non-banking days, unexpected
declared non-banking days, declared
half-day holidays and days when there is
no clearing, the reserve position as
calculated at the close of the business day
immediately preceding such public
special/legal holidays, non-banking days
and unexpected declared non-banking
days and declared half-day holidays and
days when there is no clearing, shall apply
thereon. For this purpose, the principal
office in the Philippines and all other
banking offices located therein shall be
treated as a single unit.
The guidelines on the computation of

a banks' reserve position during public
sector holidays are shown in Appendix 84.
(As amended by M-2008-025 dated 13 August 2008)
X256.1 Measurement of reserve

requirement. The required reserves in the
current period (reference reserve week)
shall be computed based on the
corresponding levels of deposit and deposit
substitute liabilities of the prior week.
X256.5 Guidelines in calculating and
reporting to the BSP the required reserves
on deposit substitutes evidenced by
repurchase agreements covering
government securities
a. The SDC shall determine the
maximum allowable amount of repo
agreements covering government
securities that will qualify for the reduced
statutory reserve requirements of two
percent (2%). It shall be based on the
amount reported by banks in their weekly
Consolidated Daily Report of Condition.
The adjusted Tier 1 capital reported daily
should approximate the quarterly adjusted
Tier 1 capital as submitted by banks in
compliance with the provisions of
Sec. X116.
b. Any material differences that may
be noted by the SDC between the daily
and the quarterly report shall be considered
as erroneous reporting and shall be subject
to the penalties under existing
regulations. The SDC shall also make a
re-run of its computation of the banks
reserve position and in the event that the
reserve position resulted to a reserve
deficiency/ies, the corresponding penalties
on reserve deficiencies shall also apply.
c. The lagged system in the
measurement of a banks reserve
requirement, as provided in Subsec.
X256.1, shall also be adopted in the
Part II - Page 35
X256.5 - X257.2
05.12.31
calculation of the two percent (2%) statutory

reserve requirements for repo agreements
covering government securities.
d. Deposit substitutes evidenced by
repo agreements covering government
securities in excess of the adjusted Tier
1 capital shall be treated as regular
deposit substitutes and shall be subject
to the regular statutory and liquidity
reserve requirements under existing
regulations.
Sec. X257 Reserve Deficiencies;
Sanctions. Whenever the reserve position
of any bank computed in the manner
specified in Sec. X256 is below the
required minimum, it shall pay the BSP
one-tenth of one percent (1/10 of 1%)
per day on the amount of the deficiency or
the prevailing ninety-one (91) day T-Bill rate
plus three (3) percentage points, whichever
is higher: Provided, however, That a bank
shall be permitted to offset any reserve
deficiency occurring one (1) or more days
of the week covered by the report
against excess reserves which it may hold
on other days of the same week, and
shall be required to pay the penalty only
on the average daily net deficiency during
the week.
In case of abuse, a bank shall
automatically lose the privilege of
offsetting reserve deficiency in the
aforesaid manner until such time that it
maintains its daily reserve position at the
required minimum for at least two (2)
consecutive weeks.
As used in this Section, abuse* in the
privilege of offsetting reserve deficiencies
against excess reserves shall mean having
reserve deficiencies occurring four (4) or
more times during any given week for
two (2) consecutive weeks, whether or not
resulting in net weekly deficiencies.
X257.1 Chronic reserve deficiency;

penalties. In cases where the bank has
chronic reserve deficiency in deposit/
deposit substitute liabilities, the bank
shall be denied the credit facilities of
the BSP; and the Monetary Board may:
(a) limit or prohibit the making of new
loans or investments by the bank; and
(b) prohibit the declaration of cash
dividends. The board of directors of
said bank shall be notified of such
chronic reserve deficiency and the
penalties therefor, and be required to
immediately correct the reserve position
of the bank.
As used in this Subsection, chronic
reserve deficiency shall mean having
net reserve deficiencies for two (2)
consecutive weeks.
X257.2 Failure to cover overdrawings
with the Bangko Sentral. Any bank which
incurs an overdrawing in its deposit
account with the BSP shall fully cover said
overdraft not later than the next clearing
day including interest thereon equivalent
to one-tenth of one percent (1/10 of 1%)
per day or the prevailing ninety-one (91)
day T-Bill plus three (3) percentage points,
whichever is higher. In case a bank fails
to cover its overdrawings, it shall be
excluded from clearing on such day and
it shall also be denied the credit facilities
of the BSP. Such exclusion from clearing
shall continue for as long as it has not
maintained credit balances with the BSP
for at least five (5) consecutive banking
days. If its clearing account is overdrawn
for five (5) consecutive banking days, it
shall be prohibited from (a) making new
loans or investments, except investment
in government securities with BSP
support; (b) declaring cash dividends until
it has maintained credit balances in its
* The reserve weeks, 20 to 26 December 2002 and 27 December 2002 to 2 January 2003, shall be considered as
a single reserve week for the purpose of determining abuse of the privilege of offsetting reserve deficiencies against
excess reserves during the reserve week.
Part II - Page 36
X257.2 - X261.1
05.12.31
BSP clearing account for at least fifteen

(15) consecutive banking days; and
(c) establishing branches. The denial
from availment of credit facilities of the
BSP shall continue for as long as the bank
maintained credit balances with the BSP
for at least fifteen (15) consecutive
banking days.
For purposes of computing the total
available reserves against deposit/deposit
substitute liabilities, the total amount
of overdrawing in the clearing account
with the BSP shall be deducted from
available reserves after the required
reserves against deposit/deposit substitute
liabilities shall have been satisfied.
X257.3 Payment of penalties on
reserve deficiencies. Penalties if unpaid
within fifteen (15) days from receipt of
the assessment, shall be charged against
the demand deposits of banks with the
BSP: Provided, That where the banks
credit balance is insufficient and it fails to
settle the assessment, the Monetary Board
may limit or prohibit the making of new

loans or investments by the bank.
Sec. X258 Report on Compliance. Every
bank shall make a weekly report to the
BSP of its daily required and available
reserves on deposit/deposit substitute
liabilities in the prescribed forms.
I. SUNDRY PROVISIONS
ON DEPOSIT OPERATIONS
Sec. X261 Booking of Deposits and
Withdrawals. The following regulations
shall govern the booking of deposits and
withdrawals of banks.
X261.1 Clearing cut-off time. As a
general rule, all deposits and withdrawals
during regular banking hours shall be
credited or debited to deposit liability
accounts on the date of receipt or payment
thereof: Provided, however, That a bank
(Next page is Part II - Page 37)
Part II - Page 36a
X261.1 - X262.1
05.12.31
may set a clearing cut-off time for its head

office not earlier than two (2) hours before
the start of clearing at the BSP, and not
earlier than three and one-half (3-1/2)
hours before the start of clearing for all its
branches, agencies and extension offices
doing business in the Philippines, after
which time, deposits received shall be
booked as hereinafter provided:
Provided, further, That banks which are
located in areas where there are no BSP
regional/clearing arrangements may set a
clearing cut-off time not earlier than two
(2) hours before the start of their local
clearing after which time, deposits
received shall be booked likewise as
hereinafter provided.
X261.2 Definitions. As used in this
Section, the following terms shall have the
following meanings:
a. Regular banking hours shall refer
to the banking hours reported to the BSP
pursuant to Sec. X156, including the
extended banking hours reported for
servicing deposits and withdrawals; and
b. Clearing cut-off time shall mean
the banks closing time for the acceptance
of deposits in the form of checks, bills and
other demand items for clearing on the
day of their receipt.
X261.3 Booking of cash deposits
Cash deposits received after the selected
clearing cut-off time until the close of the
regular banking hours shall be booked as
deposits on the day of receipt.
X261.4 Booking of non-cash
deposits. Deposits of checks including
on us checks, managers/cashiers/
treasurers checks and demand drafts,
which are drawn against the depository
bank and all its offices, as well as treasury
warrants and postal money orders,
received after the selected clearing cutoff time until the close of the regular
banking hours, may, at the option of the

bank, be booked as deposits on the day of
receipt.
Other non-cash deposits received after
the selected clearing cut-off time shall
be treated as contingent accounts on the
day of receipt and shall be booked as
deposits the following banking day.
X261.5 Booking of deposits after
regular banking hours. Deposits, whether
cash or non-cash, received after the close
of the regular banking hours shall be treated
as contingent accounts on the day of receipt
and shall be booked as deposits the
following banking day.
X261.6 Other records required
For record and control purposes, banks
shall prepare a daily abstract of deposit
transactions treated as contingent accounts.
X261.7 Notice required. Banks
shall post at a conspicuous place near each
tellers window a notice to depositors indicating their selected clearing cut-off time
and a statement to the effect that non-cash
items deposited after said cut-off time shall
be treated as transactions for the next
banking day.
Sec. X262 Miscellaneous Rules on
Deposits. Banks shall also be governed
by the following miscellaneous rules on
deposits.
X262.1 Specimen signatures, ID
photos. All banking institutions are
required to set a minimum of three (3)
specimen signatures to be simultaneously
required from each of their depositors and
to update the specimen signatures of their
depositors every five (5) years or sooner,
at the discretion of the bank. Banks may,
at their option, require their depositors to
submit ID photos together with the
specimen signatures.
Part II - Page 37
X262.2 - X263
05.12.31
X262.2 Insurance on deposits. All

banks shall indicate the coverage of the
PDIC in each passbook, certificate of
time deposit and/or cover of checkbook
for demand deposit/NOW accounts
stating, among other things, the maximum
amount of insurance.
X262.3 Certification of compliance
with Subsection 55.4 of R.A. No. 8791
Banks shall submit to the appropriate
the BSP, through the Deputy Governor of
SES, a statement within seven (7) banking
days after end of June and December,
signed solely by the Vice-President for
Administration or Human Resource or
Personnel, or by any officer assuming
equivalent responsibility, certifying their
institutions compliance with Subsection
55.4 of R.A. No. 8791, which prohibits
banks from employing casual, nonregular
personnel or too lengthy probationary
personnel in the conduct of its business
involving bank deposits. A format for the
certification of compliance is shown in
Appendix 49.
The definition contained in Articles
280-281 of the Labor Code of the
Philippines for private banks and Section
2 of the Civil Service Commission
Memorandum Circular No. 40 and Rule
VII of Civil Service: Laws and Rules for
government banks shall apply in
classifying employee/personnel as casual,
regular or probationary. Personnel with
too lengthy probationary status are
employees who are allowed to work after
a probationary period of six (6) months
without being considered a regular/
permanent employee.
Sec. X263 Service and Maintenance Fees
Banks may impose and collect service
charges and/or maintenance fees on savings
and demand deposit accounts, whether
active or dormant, that fall below the
Part II - Page 38
required minimum monthly average daily

balance (ADB), subject to the following
conditions:
a. the imposition of such charges or
fees is clearly stated among the terms and
conditions of the deposit;
b. the rate or amount of such charges
or fees is properly disclosed among the
terms and conditions of the deposit;
c. the deposit account balances have
fallen below the required minimum
monthly ADB for dormant accounts and for
at least two (2) consecutive months for
active accounts;
d. the required minimum monthly
ADB of deposits are properly disclosed
among the terms and conditions of the
deposit; and
e. in the case of charges and fees for
dormant accounts or dormancy fee, the
period of dormancy as prescribed under
Subsec. X163.12 shall be properly
disclosed among the terms and conditions
of the deposit, and that the depositors shall
be informed by registered mail with return
card or Proof of Delivery (POD) service of
the Philippine Postal Corporation and other
mail couriers on his last known address at
least sixty (60) days prior to the imposition
of dormancy fee.
Said Proof of Delivery Receipt will be
accomplished upon the addresseedepositors receipt of the letter, with the
postal personnel or courier required to
obtain and safekeep a copy of the signed
POD, for submission to the sender/bank.
The PhilPost system likewise employs
a Delivery/Monitoring Report that tallies the
number of mails with POD received,
delivered and returned per client/bank,
indicating the name of the letter carrier, his
signature and date signed. Said POD and
Delivery/Monitoring Report may be system
generated by the bank so as not to rely on
the manual inscription of the required
information by the PhilPost and/or other
mail courier personnel.
X263 - X266
08.12.31
Regardless of the forms adopted by the

PhilPost and/or other mail couriers, the
proper implementation of the POD service
requires as a minimum, that the following
information be stated clearly: (1) name and
address of the addressee/depositor;
(2) actual date of delivery/receipt; (3) name
and address of sender/bank; and (4) name
of recipient and relationship to the
addressee/depositor.
X263.1 Amendments to terms and
conditions for the imposition of service
charges/fees. Any change in the terms
and conditions for the imposition of service
charges and/or maintenance fees, e.g.,
increase in the amount of such charges and
fees or increase in the required minimum
monthly average daily balance of deposits,
shall take effect only after due notice to
the depositor: Provided, That information
by regular mail, statement of account
messages, electronic mail, courier delivery
and/or other alternative modes of
communication on the depositors last
known address at least sixty (60) days prior
to implementation shall be considered
sufficient notice: Provided, further, That
failure of the depositor to manifest or
register his objection to the new service
charges and maintenance fees or any
change in their terms and conditions in
writing within thirty (30) days from receipt
of written notice of amendment shall be
deemed to constitute acceptance of such
changes, for purposes of this Subsection.
Banks shall likewise post said
information on their respective websites,
Automated Time Machine on-screen
messages, and in conspicuous places within
the bank premises and other places near the
banks own Automated Time Machine at
least sixty (60) days prior to implementation.
Sec. X264 Unclaimed Balances. All
unclaimed balances, which include credits
or deposits of money, bullion, securities
or other evidences of indebtedness of any
kind, and interest thereon already reported

to the Treasurer of the Philippines in
accordance with the Unclaimed Balances
Act (Act No. 3936, as amended) shall be
transferred/reclassified from the deposit
liability/other credit accounts to the
liability account, Due to the Treasurer of
the Philippines, until they are deposited
with or turned over to the Treasurer of
the Philippines upon order of the court
that the same have been escheated in favor
of the Government of the Republic of the
Philippines and as such, the unclaimed
deposit liabilities shall no longer be
covered by reserves required of deposit
liabilities.
Sec. X265 Acceptance, Encashment or
Negotiation of Checks Drawn in Favor of
Commissioner/Collector of Customs. All
checks payable to the Commissioner/
Collector of Customs shall be accepted for
deposit only to the account of the
Commissioner/Collector of Customs.
Banks where the Commissioner/Collector
of Customs has no account shall not encash,
accept nor negotiate checks payable to the
Commissioner/Collector of Customs.
Any attempt to defraud the government
or the bank through the irregular or
unauthorized encashment or deposit of
these checks to accounts other than that of
the Commissioner/Collector of Customs
shall be reported immediately by the head
of the banking office to the BOC, copy
furnished the BSP.
Sec. X266 Deposit Pick-up/Cash Delivery
Services. The following are the guidelines
on the deposit pick-up/cash delivery
services of banks;
a. As a general rule, deposit pick-up/
cash delivery services shall be limited to
the following:
(1) To service the need of valued clients
whose daily average deposit amounts to:
P500 thousand for Metro Manila and
Metro Cebu clients/depositors
Part II - Page 39
X266
08.12.31
P300 thousand for outside Metro

Manila and Metro Cebu clients/depositors
(2) To be serviced during regular
banking hours and days only, unless the
nature of the business and the volume of
the deposits/cash would warrant servicing
beyond regular banking hours and days,
in which case justification therefore should
be submitted to the satisfaction of the
appropriate department of the SES (Central
Point of Contact Department (CPCD) I,
CPCD II, Integrated Supervision
Department (ISD) I, and ISD II).
b. Prior BSP authority is not
required before banks can engage in
deposit pick-up/cash delivery services:
Provided, That the following conditions
are complied with:
(1) Pick-up of deposits/cash delivery
shall be made with the use of armored cars,
which shall not be operated as a mobile
bank used in soliciting deposits from the
general public, or in any manner in
carrying out banking transactions/services
other than to afford security of deposit/cash
items in transit;
(2) Pick-up of deposits/cash delivery
may be made with the use of non-armored
vehicles in the following cases/
circumstances:
(a) On an unscheduled request;
Provided, That:
(i) all armored vehicles have already
been fielded and the request has to be
served immediately; and
(ii) it is within a five (5) kilometer
radius of a servicing banking office.
(b) In rugged terrain/mountainous
roads or roads not suitable for heavy
armored vehicles;
(c) In critical or rebel-infested areas
where there are peace and order
problems as certified by the local police
authorities; and
(d) In island provinces where the
transport of cash to a branch or office may
be made only with the use of a ferry boat:
Part II - Page 40
Provided, That the non-armored

vehicles are equipped with dual control
safe and supported with adequate security
back-up. Their movements may be
coordinated with law enforcement
authorities.
(3) The risk of loss involved in the
pick-up of deposits/cash delivery shall be
adequately covered by insurance, and the
armored car/non-armored car to be used
shall be provided, with at least two (2)
armed guards and supervised by at least
two (2) officers of the bank;
(4) The deposit/cash delivery
transactions shall be booked in accordance
with existing regulation;
(5) The strictest measure of safeguards,
control and confidentiality will be adopted
in implementing the services;
(6) A separate record/log book for
each armored car/non-armored car shall be
maintained by the bank which shall contain
the information on the deposit pick-up/
cash delivery activities of the armored car/
non-armored car to be supported by trip
tickets signed by a responsible officer of
the bank; and
(7) Records and/or such other reports
that may be required of the bank from time
to time shall be made available for
examination/inspection by the authorized
representative(s) of the appropriate
department of the SES during on-site
examination;
c. If the use of the non-armored car
under Item b(2)(a) becomes regular,
the bank shall engage an armored car to
take its place. Regularity shall mean daily
(i.e., regular banking days) or periodic
(e.g., every 15 th or end of the month)
servicing of a valued client within a three
(3) month period.
d. Pick-up of deposits/cash delivery
services to be made on days other than
the banks regular banking days shall be
allowed without prior BSP authority:
Provided, That a notarized certification
X266 - X267
08.12.31
(using the format shown in Appendix 82)

stating that the bank complies with all the
conditions set forth in Sec. X266, jointly
signed by the banks executive vice
by the banks compliance officer, shall be
of the SES (CPCD I, CPCD II, ISD I and
ISD II) at least five (5) banking days before
banks intended starting date of its
deposit pick-up/cash delivery services
beyond regular banking hours and days
to clients.
e. If any of the above conditions is not
met, the BSP may suspend the deposit
pick-up/cash delivery operations of the bank
without prejudice to the imposition of
sanctions under Section 37 of R.A. No. 7653.
(As amended by Circular No. 614 dated 14 July 2008)
X266.1 Operation of armored cars

Except for Item b(2) of this Section, banks
shall use armored cars to afford security in
collection and/or delivering cash or
securities and other valuables from or to
their clients, branch or extension offices
or the BSP, provided such armored cars
are not operated as mobile banks.
Sec. 3266 Qualifying Criteria Before a
Rural/Cooperative Bank Engages in
Deposit Pick-up Services
a. An RB/Coop Bank desiring to
undertake deposit pick-up service must
meet the following criteria:
(1) Its total resources should not be less
than P100.0 million and its net assets
should be at least P10.0 million or the
minimum capital required under Subsec.
X106.1, whichever is higher;
(2) It should not be deficient in its
networth-to-risk assets ratio;
(3) Its past due loan ratio should not
be more than fifteen percent (15%);
(4) It has no past due obligations with

(5) It should have continuous profitable
operations; and
(6) It must show adherence to law, and
BSP rules and regulations.
b. An RB/Coop Bank that meets the
above criteria shall submit for evaluation,
the following justifications on the need for
the RB/Coop Bank and its branches to
undertake such service which should
contain, among other things, the following:
(1) the names of clients/companies to
be serviced, estimated daily average
deposit and distance/proximity of client
from applicant bank;
(2) the names and number of banks,
branches, if any, in the area where
depositor is situated;
(3) the arrangement in writing
between the bank and the client desiring
to avail of the service, which arrangement
shall define and specify the respective
responsibilities of the parties; and
(4) such other information pertinent to
the application.
Sec. X267 Automated Teller Machines
a. Off-site ATMs. Banks may establish
off-site ATMs, subject to the following
conditions:
(1) Banks shall submit a report to the
appropriate department of the SES on
ATMs which they establish;
(2) The off-site ATMs shall be installed
only in centers of activity like shopping
centers, supermarkets, hospitals,
university campuses: Provided, That
adequate internal control and security
measures shall be adopted and submitted
to the BSP; and
(3) Only banks which have shown
general compliance with laws, rules and
regulations shall be allowed to open offsite ATMs.
b. Mobile ATMs. Banks may also
establish mobile ATMs, subject to the
Part II - Page 41
X267 - X268.3
08.12.31
(1) The mobile ATMs should be

allowed to visit only centers of activity as
mentioned in Item a(2) above and should
confine their itinerary to Metro Manila until
further notice;
(2) The bank shall secure insurance
coverage or adopt a self-insurance scheme
to protect itself against losses of
whatever nature in its mobile ATM
operations; and
(3) The bank shall notify the
actual date a mobile ATM becomes
operational and when no longer in
operation.
J. BORROWINGS FROM THE
BANGKO SENTRAL
Sec. X268 Rediscounting Line. The
operations of the BSPs rediscounting line
by banking institutions.
X268.1 Credit Information System

The rediscounting availments of all eligible
banks shall be drawn against their
rediscounting line which is based on their
total credit score under the Credit
Information System (CRIS). The scoring
system under the CRIS shall consider the
following factors:
a. Management
and
risk
management system;
(1) Management;
(2) Risk management system;
b. Financial indicators;
(1) Capital adequacy;
(2) Asset quality;
(3) Profitability;
(4) Liquidity;
c. Credit experience;
(1) Compliance with the terms and
conditions of the loan and other BSP
regulations; and
(2) Credit experience with other FIs.
Part II - Page 42
The CRIS guidelines shall be reviewed

on a regular basis by a Credit Committee
created under MB Resolution No. 832 dated
02 July 2008, to maximize its effectiveness
in managing the credit risk of the BSP.
(Circular No. 515 dated 06 March 2006 as amended by Circular
No. 630 dated 11 November 2008)

Banks applying for a rediscounting line shall
submit their application in the prescribed
form (RL Form No. 1) to the DLC, BSPManila or the appropriate Regional Loans
and Credit Division (RLCD), BSP Regional
Offices in Cebu, Davao and La Union,
together with the following documents:
a. Board resolution duly signed by the
board of directors of the applicant bank,
authorizing the bank to apply for a
rediscounting line with the BSP and
designating the officer/s of the bank to sign
and endorse documents pertaining thereto,
together with their specimen signature/s;
b. Articles of incorporation (for new
applicants only) and amendments, if any;
c. Organizational chart (for new
applicants only);
d. List of board of directors and
principal officers (top three (3) executive
officers) and their education/training and
work experience;
e. Annual report/AFS for the
immediately preceding year; and
f. For
banks
applying
for
microfinance facility, a copy of the Manual
of Operations pertaining to microfinance
operations.
X268.3 Approval/Renewal of the line

The approval/renewal of the line shall be
subject to the banks full compliance with
a. Minimum capital prescribed under
Subsecs. X106.1 and X106.2 based on the
latest available report of the SDC;
X268.3 - X268.4
08.12.31
b. CAR as required under Sec. X116

based on the latest available report of
the SDC except those with capital
build-up program approved by the
Monetary Board;
c. Required reserves against deposit
liabilities/deposit substitutes for two (2)
consecutive weeks based on the latest
available report of the SDC;
d. NPL ratio lower or equal to the
industry average adjusted upward by two
percent (2%) based on the latest available
report of the SDC, or the allowable NPL
ratio approved by the Monetary Board;
e. Positive DDA balance with the
BSP as of date of application;
f. No past due obligations or
collateral deficiencies on account of
matured notes/unremitted collections/
missing collaterals or ineligible papers
with the BSP as of date of application;
g. A CAMELS composite rating of 3
or higher based on the latest general
examination of the appropriate department
of the SES; and
h. The ratio of past due direct and
indirect loans to DOSRI to the aggregate
past due loans should not be more than
five percent (5%) based on latest available
report of the SDC.
Banks applying for the microfinance
facility shall also comply with the following
requirements based on the latest available
report of the SES:
a. At least one (1) year track record in
microfinance;
b. At least 500 active microfinance
borrowers;
c. A portfolio at risk ratio (PAR) of not
more than five percent (5%);
d. The ratio of total collections
(excluding prepayments) during the
preceding twelve (12)-month period to total
collectibles (past due microfinance loans
beginning, plus matured loans/principal
amortizations due for the period) should not
be less than ninety-five percent (95%); and
e. Officers and staff responsible for

microcredit operations shall have
completed: (1) a training course on
microfinance; and (2) at least one (1) year
experience in microlending activities.
The approval, disapproval, extension,
amendment, cancellation, suspension
and restoration of the rediscounting line
shall be delegated to a Credit Committee
composed of the Assistant Governor/
Managing Director (MD) of the Monetary
Operations Sub-Sector, MD of the
Regional Monetary Affairs Sub-Sector,
and the Director of the DLC.
Banks with approved rediscounting
line shall, thereafter, submit the
following:
a. Rediscounting line agreement
(RL Form No. 3);
b. Surety agreement executed by the
controlling interest [single stockholder,
natural or juridical owning more than fifty
percent (50%) of the voting stocks]
obligating himself/itself jointly and
severally with the bank to pay promptly
on maturity, or when due, the BSP, its
successors or assigns, the banks
outstanding obligations with the BSP
(RL Form No. 4); and
c. For new applicant RBs/Coop Banks
with designated custodian bank, a
tripartite depository agreement (RLF
Form No. 2) by and among the applicant
bank, designated depository bank (duly
concurred by its Head Office) and the
DLC or RLCD.
X268.4 Amount of line. The

amount of rediscounting line shall be based
on the total credit score obtained by the
applicant bank computed under the CRIS
guidelines which ranges from fifty percent
(50%) to 200% of adjusted net worth.
Part II - Page 43
X268.5 - X269.2
08.12.31
X268.5 Term of the line. The term

of the line shall be for one (1) year unless
sooner cancelled, suspended, amended or
extended by the Credit Committee. The
line is renewable annually upon
submission of application one (1) month
before the expiry of said line. Should there
be special circumstances or information
from the SES that may adversely affect the
credit worthiness of a bank in the
intervening period, the rediscounting line
of the bank concerned will be reviewed
immediately and acted upon accordingly.
X268.6 - X268.9 (Reserved)

X268.10 Constitutional prohibition
The following regulations shall govern the
implementation of Section 16, Article XI
of the Constitution, which reads as follows:
"Sec. 16. No loan, guaranty, or other
form of financial accommodation for any
business purpose may be granted, directly
or indirectly, by any government-owned
or controlled corporation or financial
institution to the President, the VicePresident, the Members of the Cabinet, the
Congress, the Supreme Court, and the
Constitutional Commissions, the
Ombudsman, or to any firm or entity in
which they have controlling interest,
during their tenure."
a. Definition
(1) The terms "loan", "guaranty" or
"other form of financial accommodation"
as used in these regulations shall refer to
transactions which involve the grant,
renewal or extension to a bank by the BSP
of any loan, advance, discount, rediscount
or credit in any form whatsoever.
(2) Controlling interest in a bank. Any
of the government officials mentioned in
Section 16, Article XI of the Constitution
(the "Official") shall be deemed to have a
controlling interest in a bank if he owns
more than fifty percent (50%) of the voting
Part II - Page 44
stock of such bank. For the purpose of this

Subsection, the stockholdings of the
spouse or minor child of the Official shall
be included in determining if he has such
controlling interest.
b. Certification required. A bank
applying for a loan or financial
accommodation with the BSP shall submit,
together with the application, a
certification under oath of the President of
the bank that the bank and/or any of its
stockholders do not fall within the
prohibition under Section 16, Article XI of
the Constitution.
Sec. X269 Rediscounting Availments
Banks shall enroll in the Electronic
Rediscounting System (eRS) by executing
and submitting to the DLC or the RLCD a
Notarized Electronic Rediscounting System
Participation Agreement before availing of
the rediscounting facility of the BSP.
X269.1 Eligibility requirements at

the time of availment. Banks availing of
the BSP rediscounting facility must have
at the time of availment :
a. A positive DDA balance;
b. No past due obligations; and
c. No collateral deficiencies on
account of matured notes, unremitted
collections, missing collaterals or
ineligible papers.
X269.2 Eligible papers and

collaterals. The BSP shall accept credit
instruments covering all economic
activities except the following:
a. Interbank loans;
b. Extended/Restructured loans;
c. Past due loans;
d. Unsecured loans;
e. Personal consumption loans;
f. Loans to NBFIs; and
X269.2
08.12.31
g. Loans funded from other

borrowings, e.g. government FIs or
multi-lateral agencies.
Credit instruments offered as collateral
shall be subject to the eligibility
requirements provided under Section 82 of
R.A. No. 7653.
a. Commercial credits Bills,
acceptances, promissory notes (PNs) and
other credit instruments with maturities of
not more than 180 days from the date of their
rediscount, discount or acquisition by the BSP
and resulting from transactions related to:
(1) the importation, exportation,
purchase or sale of readily saleable goods
and products, or their transportation within
the Philippines; or
(2) the storing of non-perishable goods
and products which are duly insured and
deposited, under conditions assuring their
preservation, in authorized bonded
warehouses or in other places approved
Credit instruments acquired under
commercial credits shall be secured
either by:
Type of Collateral
Duly notarized
assignment of export
or domestic letters of
credit
confirmed
purchase order sales
contract,
quedans
Collateral Value
Shall equal or
exceed the
outstanding balance
of
the credit
instrument
(2)
Trust Receipts
Shall equal or
exceed the
outstanding balance
of the credit
instrument
(3)
Duly registered
mortgage on real
property
70%
of
the
appraised value
shall equal or
exceed
the
outstanding
balance of the PN
(4)
Credit guarantees/
sureties issued by
the lGLF the Small
Business Corporation
(SBC) and the national
government
Shall equal or
exceed the
outstanding
balance of the PN
(1)
Type of Collateral
(5)
Credit guarantees/
sureties issued by
the Credit Surety
Fund (CSF) jointly
established
by
cooperatives and
local government
units
Collateral Value
Shall equal or
exceed 80% of
the outstanding
balance of the PN
b. Production credits Bills,

acceptances, PNs and other credit
instruments having maturities of not more
than 360 days from the date of their
rediscount, discount or acquisition by the
BSP and resulting from transactions
related to the production or processing of
agricultural, animal, mineral, industrial
and other products.
production credits shall be secured by a
duly registered mortgage on real property
seventy percent (70%) of the appraised
value of which equals or exceeds the
outstanding balance of the PN.
c. Other credits - Special credit
instruments not otherwise rediscountable
under the immediately preceding Items
"a" and "b" such as, but not limited to,
microfinance, housing, services,
agricultural loans with long gestation
period and other eligible economic
activities with maturity of not more than
10 years from date of their rediscount,
discount or acquisition of the BSP.
other credits shall be secured by:
(1)
(2)
Type of Collateral
Collateral Value
Duly
registered
mortgage on real
property
70%
of
the
appraised value
shall
equal or
exceed
the
outstanding
balance of the PN
Duly
notarized
assignment
of
receivables from
service contract
Shall
equal or
exceed
the
outstanding
balance of the PN
Part II - Page 45
X269.2 - X269.5
08.12.31
Type of Collateral
(3)
Collateral Value
Credit
guarantees/
sureties issued by the
IGLF the SBC and the
national government
Shall
equal
or
exceed
the
outstanding
balance of the PN
(4) Credit
guarantees
sureties issued by the
CSF jointly established
by cooperatives and
LGUs
Shall
equal
or
exceed 80% of
the
outstanding
balance of the PN
(5)
Current
market
value shall equal
or exceed the
outstanding
balance of the PN
Other
collaterals
acceptable to the BSP
e.g.,
government
securities
For housing loans, the lien or mortgage

shall cover the property being financed.
Unsecured loans may be accepted
for rediscounting provided they are:
a. Microfinance loans; or
b. Loans secured by a duly registered
mortgage on real property of the bank,
seventy percent (70%) of the appraised
value of which equals or exceeds the
outstanding balance of the unsecured PN
and other collaterals acceptable to the BSP,
e.g., government securities.
X269.3 Loan availment procedure

Banks availing of the rediscounting facility
shall submit their loan applications
electronically to the BSP using their eRS
registered computers.
Upon receipt of the confirmation of loan
approval:
a. Banks shall execute the PNs with
Trust Receipt Agreement and Deed of
Assignment (PNTRADA) in favor of the BSP
(RL Form No. 7 for peso and RL Form No. 8
for dollar and yen), signed by the authorized
officer/s of the bank.
b. Banks authorized to hold-in trust
the rediscounted credit instruments and
underlying collaterals shall segregate and
keep the same together with the
Part II - Page 46
PNTRADA at a secured place within their

premises under the custody of the
accountable officer.
c. Banks with custodianship
agreements shall deposit with their
respective depositary/custodian bank the
rediscounted credit instruments, underlying
collaterals and the PNTRADA not later than
the next banking day from date of loan grant,
receipt of which shall be acknowledged by
the depositary bank in the List of
Rediscounted Loans.
X269.4 Loan value. The loan value

of all eligible papers shall be eighty percent
(80%) of the outstanding balance of the
borrowers credit instrument.
X269.5 Maturities. The maturities

of BSP rediscounts are as follows:
Type of Credit
Maturity Date
a. Commercial Credits
(1) Export Packing
180 days from date
(2) Trading
of rediscount
(3) Transport
shall not go beyond
(4) Quedan
the maturity date of
but
the credit instrument

(5) Export Bills (EBs)
At sight
fifteen
(15)
days
from purchase date

Usance EB
term of draft but not to

exceed sixty (60) days
from
b. Production
Credits
c. Other Credits
shipment
date
360 days from date of

rediscount but shall
not go beyond the
maturity date of the PN
maximum term of ten
(10) years but shall not
go beyond the maturity
date of the credit
instrument

X269.6 - X269.8
08.12.31
X269.6 Rediscount/Lending rates and

liquidated damages. The rediscount rates
for peso, dollar and yen loans shall be as
follows:
Based on the application T-Bill rates
from the last auction of the
preceding
week as
follows:
Loan Maturity
Applicable
T-Bill Rates
a. Peso
90 days or less
91 days
Rediscount
91-180 days
182 days
181-360 days
364 day
>360 days
364-day subject to
re-pricing every year
b. Dollar/
Based on their respective London
Yen
Inter-Bank Offered Rate (LIBOR)
Rediscounts
for the last working day of the
immediately preceding month
The lending rates of banks on their

rediscounted papers shall not be subject
to any ceiling but the spreads of the banks
on these papers shall be closely
monitored by the BSP to ensure that
these are consistent with the prevailing
market rates.
Past due BSP loans and unpaid matured
notes shall be levied liquidated damages
equivalent to five percent (5%) per annum.
X269.7 Release of proceeds. The

proceeds of the rediscounting availment
shall be released as follows:
a. Peso rediscounts - automatically
credited to the borrowing banks DDA or
its depository banks DDA with the BSP
on the same day for loan application
submitted to the BSP before 4:30 pm
during banking days.
b. Dollar/Yen rediscounts - released
through the Treasury Department, BSP, for
credit to the designated foreign
correspondent bank of the borrowing bank
as follows:
(1) Same banking day credit for dollar
loan application submitted to the BSP before
11:00 am, during banking days; and
(2) Following banking day credit for

yen loan application submitted to the BSP
before 11:00 am, during banking days.
X269.8 Repayments/Remittance of
collections/arrearages. The following
shall govern repayments, remittance of
collections, and arrearages:
a. Repayments
(1) Peso rediscounts
(a) The loan value of the rediscounted
credit instruments or the amortization plus
interest due thereon shall automatically be
debited against the borrower banks DDA
with the BSP at maturity/amortization due date.
(b) For microfinance loans, the DDA
of the borrower bank shall automatically
be debited on the amortization due date
for the loan value of the amortization plus
interest due thereon. For loans with daily,
weekly or semi-monthly amortizations,
the borrower banks DDA shall
automatically be debited on the last
amortization due date of said month for the
total loan value of the amortizations for the
month plus interest due thereon.
(c) The loan value of unremitted
collections and of the rediscounted credit
instruments and/or underlying collaterals
found to be missing, ineligible or with
exceptions not corrected within fifteen (15)
days from receipt of notice plus interest due
thereon shall automatically be debited against
the borrowers banks DDA with the BSP.
(2) Dollar/Yen rediscounts
Dollar and yen loans shall be repaid in
the same currency under which they were
released. For this purpose, the bank shall
submit online to the BSP its payment
instruction one day before the payment
date or the maturity date of the loan
corresponding to the remittance instruction
to its designated correspondent bank. The
payment shall cover total collections or
payment of maturing loans plus interest
Part II - Page 47
X269.8 - X269.11
08.12.31
due thereon. In case of short payment, the

banks DDA with the BSP shall
automatically be debited for the peso
equivalent of the shortage.
If the foreign currency denominated
loans are not settled on maturity date, the
borrowing banks DDA with the BSP
shall automatically be debited for the
peso equivalent of the matured
obligation plus accrued interest due
thereon, using the applicable BSP selling
rate for dollar or yen at the date of debit.
b. Remittance of collections (1) Total collections received by the
borrowing bank before the maturity date
of the rediscounted credit instruments
shall be remitted not later than five (5)
banking days following the date of
receipt of collections to the following:
Peso Rediscounts
BSP
Dollar Rediscounts Federal Reserve Bank of

New York for the
account
of
BSP
Yen Rediscounts
Bank of Tokyo for the

account of BSP
(i) Total collections shall refer to the

loan value of the principal amount
collected from rediscounted credit
instruments plus accrued interest due on
the outstanding balance of subject credit
instruments.
(ii) For banks with BSP loans under
past due status, total collections shall
include all collections on principal,
interest and penalty.
(iii) In the case of negotiated EBs,
the receipt by the borrowing bank of
payment from its correspondent bank
either through actual remittance or
credit advice; or through book entries
made by the borrowing bank charging
its correspondent bank before receipt
of advice shall constitute receipt of
collection.
Part II - Page 48
(2) The bank shall ensure that

adequate records are maintained in its
Head Office on the collections made by
the branches.
c. Arrearages. The BSP shall
undertake all necessary collection
measures allowed by law, such as
foreclosure proceedings against banks
with past due loans.
(Circular No. 515 dated 06 March 2006 as amended by
Circular No. 630 dated 11 November 2008)
X269.9 Prohibited transactions

The following shall not be allowed
without prior approval of the BSP:
a. Substitution of rediscounted
credit instruments and underlying
collateral real properties on outstanding
loans with the BSP;
b. Renewal of rediscounted credit
instruments without remitting payment
while the loan released against the
rediscounted credit instrument is still
outstanding with the BSP; and
c. Acceptance of properties as
payment (dacion en pago).
X269.10 Monitoring and credit

examination of borrowing banks. The
DLC and the RLCD shall conduct an
off-site analysis of the BSPs credit
exposure to borrowing banks and a
risk-based on-site examination that
will focus primarily on determining
whether there is a "high", "moderate"
or "low" probability of default on the
settlement of the banks rediscounting
obligations with the BSP.
X269.11 Penalties/sanctions. The

following penalties and sanctions shall
be imposed on the erring bank
and/or the banks authorized/certifying
officers.
X269.11
08.12.31
a. For serious offense

Aggregate Amount/
Penalty Range
P50K or less
Above P50K
to P 100K
Above P100K
to P500K
Above P500K
to P1M
Above
P1M
Minimum
P83
P250
P1,000
P2,500
P5,000
Maximum
250
750
3,000
7,500
15,000
b. For less serious offense

Minimum
P63
P188
P750
P1,875
P3,750
Maximum
188
563
2,250
5,625
11,250
Minimum
P42
P125
P500
P1,250
P2,500
Maximum
125
375
1,500
3,750
7,500
c. Minor offense
The following definition of terms shall

apply:
(1) Offense shall refer to a violation that
connotes infraction of the terms and
conditions of the loans granted by the BSP
and of the applicable laws, rules and
regulations, BSP credit policies and
non-compliance with the BSP/Monetary
Board directives.
(2) Serious offense This refers to acts
or omissions constituting violation of the
terms and conditions of the loans granted
to the bank and of the applicable laws, rules
and regulations that constitute unsafe and
unsound banking practices; and the
misrepresentation of facts and warranties
committed by the bank/individual(s) that
influenced the approval and amount of the
rediscounting loan/line granted, such as:
(a) Rediscounting of ineligible papers,
fictitious borrowers/loans/titles or
submission of spurious documents;
(b) Absence of or failure to execute
vital loan documents;
(c) Failure or delay in the deposit of
rediscounted loan documents with the
custodian bank, except those caused by
fortuitous events; and
(d) Failure to remit to the BSP

collections on principal of the rediscounted
loans within the prescribed period of five
(5) banking days from date of actual receipt
of collections except collections from
microfinance loans.
(3) Less serious offense This refers
to acts or omissions constituting
violation of the terms and conditions of
the loans granted to the bank and of the
applicable laws, rules and regulations
t h a t c o n s t i t u t e unsafe and unsound
banking practices but not falling under the
serious offense category; however, the
deficiencies noted should be addressed
immediately to mitigate the credit risk of
the BSP.
(4) Minor offense This includes acts
or omissions which are procedural in
nature, not intentional, may not result in
any loss or damage to or any significant
increase in the risk of the creditor BSP and
can be resolved immediately during the
normal course of business. For purposes
of classifying the nature of the offense, this
includes all other acts or omissions which
cannot be classified under serious or less
serious offenses.
Part II - Page 49
X269.11 - X271
08.12.31
(5) Aggregate amount - shall refer to

the aggregate amount of the following
under the current examination:
(a) Under serious offense:
Total loan value of the following:
(i) Rediscounted ineligible papers with
serious offense, fictitious loans or spurious
loan documents as determined by the BSP
or OSI;
(ii) Undeposited vital loan documents
and underlying collaterals as of
examination date; and
(iii) Collections on principal of
rediscounted loans which were not
remitted to the BSP within the prescribed
period of five banking days from date of
receipt of collections.
(b) Under less serious offense:
Total loan value of rediscounted
ineligible papers with less serious offense
as determined by the BSP.
(c) Under minor offense:
Total loan value of rediscounted
ineligible papers with minor offense as
determined by the BSP.
(6) Minimum penalty refers to the
range of penalties to be imposed if the
mitigating factor(s) outweigh the
aggravating circumstances, to wit:
(a) The act or omission is not
intentional or the bank acted in good faith
when the error, deficiency, violation or the
absence/lack of the required action were
committed.
(b) The bank is willing to take
immediate action or has started to rectify
the deficiencies/violations noted or
undertakes to correct the deficiencies
within fifteen (15) days from receipt of
notice.
(c) The bank has voluntary disclosed
the offense/violation committed before it
is discovered by the BSP or has remitted
to the BSP the total amount due plus
accrued interest.
(7) Maximum penalty refers to the
range of penalties to be imposed if the
Part II - Page 50
aggravating circumstances outweigh the

mitigating factor(s), to wit:
(a) The act or omission carries with it
the intention to commit or cover up a
violation or to defraud the BSP.
(b) Commission or omission of a
specific offense corrected in the past but
found repeated in another transaction in
subsequent examination.
(c). Additional interest charges on
unpaid penalty.
An additional interest of twelve
percent (12%) per annum shall be assessed
on non-payment of the penalties, from
date of demand until full settlement
thereof.
The foregoing monetary penalties shall
be without prejudice to the cancellation of
the banks rediscounting line with the BSP
and/or administrative and criminal
sanctions that may be charged against its
culpable officers.
X269.12 Interlocking directorship/

officership. Banks owned or managed by
the same owners, stockholders, directors,
officers or family/business group may also
be suspended from availment of the
rediscounting facility by the Credit
Committee once the rediscounting line of
any of the banks belonging to the same
group is suspended, until such time that
the suspension of the erring bank is lifted.
Sec. X270 Repurchase Agreements with

the Bangko Sentral. Repo agreements with
the BSP shall be governed by Sec. X601.
Sec. X271 Bangko Sentral Liquidity
Window. The following guidelines shall
govern the grant by the BSP of credit
accommodations through a liquidity
window to banks.
X271.1 - X272.2
06.12.31
X271.1 Nature of liquidity window

The window shall meet the liquidity needs
of the financial system under normal
conditions and shall be distinct from
overdrafts and emergency advances.
a. Interest rate. The rate of interest
chargeable on availments under the
liquidity window shall be the rate
equivalent to the reference rate for ninety
(90) days determined and announced by
the BSP for floating rate loans, plus or
minus a rate to be determined by the BSP
on the basis of the prevailing monetary
situation.
The additional or discount rate
established for any given time shall be
made public by the BSP and applied
uniformly to all borrowers during that
period.
The additional rate to be imposed over
and above the reference rate shall not be
less than two (2) percentage points, with
the applicable additional rate to be
determined by the BSP on the basis of
the prevailing monetary situation.
b. Security. Any paper, irrespective
of maturity, eligible under Section 82 of
R.A. No. 7653.
c. Loan values. The loan values of
the paper offered as collateral should be
eighty percent (80%) of the amount still due
outstanding on the paper offered as collateral.
d. Repayment period. The term of
the credit accommodation shall not exceed
seven (7) days.
X271.3 Limit. Availment by any bank
under this facility shall not exceed ten
percent (10%) of its net worth, as defined
under Sec. X106 as of the end of the quarter
preceding the date of application. In the
case of branches of foreign banks, the quota
shall be ten percent (10%) of the assigned
capital as of the date of application.
Additionally, a bank or a branch of a foreign
bank may avail itself of this facility to the

extent equivalent to a further five percent
(5%) of its net worth, as defined under Sec.
X106 or assigned capital, as the case may
be, as of the end of the quarter preceding
the date of availment. Any availment of the
liquidity window shall fall within the
unavailed basic rediscount ceiling of the
bank or the branch of a foreign bank as the
case may be.
Sec. X272 Emergency Loans or Advances
to Banking Institutions. The emergency
loan or advance to banking institutions is
governed by the provisions of Sections 84
to 88 of R.A. No. 7653, otherwise known
as The New Central Bank Act. The
following guidelines shall govern the BSPs
emergency loans and advances.
X272.1 Nature of emergency loans or

advances. An emergency loan or advance
is a credit facility that is intended to assist a
bank experiencing serious liquidity
problems arising from causes not
attributable to, or beyond the control of, the
bank management. The grant of such
facility is discretionary upon the Monetary
Board, and is intended only as a temporary
remedial measure to help a solvent bank
overcome serious liquidity problems. As
provided under Sections 84 to 88 of R.A.
No. 7653, no emergency loan or advance
may be granted except on a fully secured
basis and the Monetary Board may
prescribe additional conditions, which the
borrowing banks must satisfy in order to
have access to the credit facility of the BSP.
X272.2 When an emergency loan or

advance may be availed of. An emergency
loan or advance may be granted:
a. In periods of national and/or local
emergency or of imminent financial panic
which directly threaten monetary and
Part II - Page 50a
X272.2 - X272.4
06.12.31
banking stability, i.e., situations involving

bank runs, massive movements by
depositors of their funds from certain banks
to other banks, bank holidays and voluntary
cessation of business, or when there are
movements which endanger the economy,
or when the international stability of the
peso is threatened, or when there is an
exchange crisis.
b. During normal periods for the
purpose of assisting a bank in a precarious
financial condition or under serious
financial pressures brought about by
unforeseen events or events which though
foreseeable, cannot be prevented by the
bank concerned.
Provided, That there is a concurrent vote
of at least five (5) members of the Monetary
Board and the latter has ascertained that the
bank is not insolvent: Provided, further, That
banks with positive CAR of not more than
six percent (6%) based on adjusted books of
accounts shall submit a Business
Improvement Plan (BIP) acceptable to the
BSP within six (6) months from date of
advice by the appropriate department of
the SES. For this purpose, the appropriate
department of the SES shall warn the
concerned banks that failure to submit the
required BIP in accordance with the criteria
of the appropriate department of the SES
shall disqualify the bank from access to the
BSPs emergency loan facility. Banks with
zero to negative CAR should have an
existing BSP-approved rehabilitation plan
and on track with the Plan to be eligible to
avail itself of emergency loan.
X272.3 Allowable amount of

emergency loan or advance. The
maximum amount of an emergency loan
or advance shall be limited to the amount
needed by the applicant bank to overcome
the emergency or financial predicament but
not to exceed the sum of fifty percent (50%)
of its total deposits and deposit substitutes
Part II - Page 50b
as of the last banking day of the month

preceding the date of emergency loan
application: Provided, That, in no case shall
such maximum amount exceed the loan
values of the collaterals submitted, as
determined by the BSP.
The amount approved by the Monetary
Board shall be released in tranches. The
first tranche shall not exceed twenty-five
percent (25%) of the total deposits and
deposit substitutes of the bank as of the
last banking day of the month preceding
the date of emergency loan application and
shall be released only after the submission
of the collaterals and required documents
under Subsecs. X272.4 and X272.5:
Provided, however, That upon request of
the applicant bank, the Monetary Board
may authorize a first tranche in an amount
greater than twenty-five percent (25%) of
the banks total deposits and deposit
substitutes if the circumstances
surrounding the emergency or financial
predicament warrant the release of such
greater amount and the same is adequately
secured by first class collaterals.
Except as provided in Subsec.
X272.7(d) hereof, the proceeds of the
emergency loan or advance shall be
utilized exclusively to service net
withdrawals of deposits and deposit
substitutes, i.e., amount of the banks total
withdrawals less total deposits.
The principal amount of the emergency
loan or advance shall not exceed the
difference between the highest level of the
banks deposit and deposit substitutes of
the immediately preceding thirty (30)-day
period from date of emergency loan
application and the current level of deposits
and deposit substitutes as determined by
the appropriate department of the SES.

Banks applying for an emergency loan or
advance shall submit an application
X272.4
06.12.31
(EL Form No. 1) with the appropriate

department of the SES, copy furnished the
DLC. During normal periods, the
applicant-bank shall state the reasons for
the proposed loan availment and other
details showing the precarious financial
condition or the serious financial pressures
being experienced by the bank.
The bank shall submit together with
the application, the following documents:
a. Certified Statement of Condition
(under oath) as of the last banking day of
the month preceding the date of
emergency loan application.
b. A duly notarized secretarys
certificate (EL Form No. 2) together with a
resolution of the board of directors of the
bank:
(1) Authorizing the availment by the
bank of an emergency loan or advance
from the BSP.
(2) Signifying the banks commitment
to comply with the guidelines set forth
herein and the terms and conditions that
may be imposed by the Monetary Board.
(3) Designating the chairman and the
president or in their absence, any of the
next two (2) highest officers, as duly
authorized signatories for the emergency
loan or advance application, promissory
notes, and all undertakings. Designated
authorized officers not lower than senior
vice president, or equivalent position, may
be authorized to execute all accessory
documents for the emergency loan or
advance.
(4) Authorizing the Bangko Sentral to
evaluate other assets of the bank certified
by its auditors to be good and available for
collateral purposes should the grant of
subsequent tranches be applied for.
After determining the eligibility of the
applicant bank to avail of the emergency
loan or advance under Subsec. X272.2, the
appropriate department of the SES shall
prepare a memorandum to the Monetary
Board stating among others, the following:
a. Validation of the eligibility of

applicant bank.
b. Financial condition of applicant bank.
c. Volume of deposits and expected
withdrawals of deposits.
d. Amount and terms of the loan.
e. Whenever applicable, circumstances
that warrant the grant of the first tranche
greater than twenty-five percent (25%) of
the total deposits and deposit substitutes
as provided by law.
The applicant bank shall submit to the
DLC, prior to the release of the first tranche,
the following documents together with the
copy of the application:
a. Listing of assets that are good and
available for collateral purposes as certified
by the banks duly appointed external
auditor (EL Form No. 3).
b. Listing of collaterals in the
prescribed formats (EL Form Nos. 4/4a/4b)
as well as a 3.5 diskette containing the
database, (in MS Excel format), together
with the documents of title and/or evidences
of ownership of the collaterals offered
including the following documents:
(1) Appraisal reports of not more than
one (1) year conducted by an independent
appraiser acceptable to the BSP in
accordance with BSPs terms of reference.
(2) Latest tax declarations.
(3) Current tax receipts, tax clearances
and other documents needed for registration
of mortgages and deeds of assignment.
(4) Current insurance policies
covering improvements and official
receipts of premium payments.
(5) Department of Agrarian Reform
(DAR) certification that agricultural
properties offered as collaterals are not
covered by the Comprehensive Agrarian
Reform Program (CARP).
(6) Current original promissory notes
of banks borrowers duly endorsed in favor
of the BSP.
(7) Special power of attorney or
stockholders resolution, when appropriate.
Part II - Page 50c
X272.4
06.12.31
c. Notarized Deed of Undertaking

executed by the above-mentioned officers
of the bank to: (1) register with the Registry
of Deeds all the covering legal documents
before loan release at the expense of the
bank and that, in the event the BSP agrees
to release the proceeds of the loan before
said documents are registered, the same
shall be registered by the bank at its own
expense; and (2) submit the documents
needed to complete the requirements of
the tranche not later than fifteen (15) days
from release of the emergency loan or
advance. (EL Form No. 5).
In case of failure by the bank to register
the covering legal documents within
fifteen (15) days from date of release of
loan proceeds, the BSP shall register said
documents for the account of the applicant
bank, and all costs and expenses shall, at
the option of BSP, be deducted from any
subsequent availments of the bank or from
its DDA or be added to its liability account
with the BSP.
d. Notarized Joint and Several
Undertaking executed by all the controlling
stockholders [owning more than fifty percent
(50%) of the voting stocks] of the bank and
every person or a group of persons whose
stockholdings are sufficient to elect at least
one (1) director to indemnify and hold
harmless from suit the BSP, its Monetary
Board members, Governor, officers and
personnel, and the conservator whose
appointment the Monetary Board may find
necessary at any time. The Department of
Finance or stockholder of record will sign the
joint and several undertaking if the
government is a stockholder (EL Form No. 6).
e. Notarized Deed of Undertaking
with waiver of secrecy of deposits and
commitment by the directors, principal
officers with the equivalent rank of vicepresident and up, all the controlling
stockholders, and every person or group
of persons and their respective spouses,
whose stockholdings are sufficient to elect
Part II - Page 50d
at least one (1) director not to withdraw any

portion of their deposits and deposit
substitutes as of date of release of the first
tranche while the emergency loan remains
outstanding. In the event of a compelling
reason to withdraw, payment of the
emergency loan or advance in an amount
equivalent to the deposits to be withdrawn
shall be made (EL Form No. 7).
f. Notarized Surety Agreement
executed by the controlling stockholders
and every person or group of persons
whose stockholdings are sufficient to elect
at least one (1) director obligating
themselves jointly and severally with the
bank to pay promptly on maturity, or when
due, the Bangko Sentral, its successors or
assigns, all promissory notes covering the
emergency loan or advance. (The
Government,
its
subdivisions,
instrumentalities and agencies, and
government entities are exempted from
this requirement.) (EL Form No. 8)
g. Notarized Deed of Negative
Pledge executed by the controlling
stockholders and every person or group
of persons whose stockholdings are
sufficient to elect at least one (1) director,
together with their respective certificates
of stock. (The Government, its
subdivisions, instrumentalities and
agencies, and government entities are
exempted from this requirement.)
(EL Form No. 9).
h. Certification under oath executed by
the chairman and president of the bank that
the bank or any of its stockholders does not
fall within the prohibition under Section 16,
Article XI of the Constitution (EL Form No. 10).
Prior to the release of the subsequent
tranches, the bank shall submit to DLC the
documents of title and/or evidences of
ownership of the collaterals, together with
the other documents referred to in Item
b of the immediately preceding
paragraph of this Subsection for the amount
being applied for release and, where
X272.4 - X272.6
06.12.31
necessary, such other acceptable security

which, in the judgment of the Monetary
Board, would be adequate to supplement the
assets tendered to collateralize the
subsequent tranche.
Banks availing of emergency loan or
advance may decline to submit either item
"f" or "g" or both, but the loan values
specified in Items "b" and "d" of Subsec.
X272.6 shall be reduced.
X272.5 Other documentary

requirements. Before release of any
emergency loan or advance, the applicant
bank shall, aside from the documentary
requirements already mentioned above,
submit such other requirements/
documentation as may be required by the
DLC, e.g., duly Notarized Promissory
Note in Favor of the BSP (EL Form No. 11/
11a), Notarized Deed of Real Estate
Mortgage (EL Form No. 12-Bank Assets/
ACCEPTABLE COLLATERALS
12a-Stockholder/Third Party Assets),

Notarized Deed of Pledge (EL Form No.13Individual/Corporation/13a-Stockholders/
Third Party Assets), Notarized Deed of
Assignment of Mortgages (EL Form No.
14), Hold-out on Foreign Currency
Deposits with BSP (EL Form No. 15) and
Joint Affidavit executed by the banks
chairman and president and the Individual
Mortgagor (EL Form No. 16- Individual) or
the CorporateMortgagors chairman and
president (EL Form 16a- Corporation).
X272.6 Acceptable collaterals and

their corresponding loan values. All
availments of the emergency loan or
advance shall be secured by first class
collaterals, i.e., assets and securities which
have relatively stable and clearly definable
value and/or greater liquidity and free from
lien and encumbrances, to the extent of
their applicable loan values, as follows:
With Surety
Agreement
and
Negative
Pledge
a. Government securities - based on the current market

80%
value of the securities
b. Unencumbered real estate properties in the name of
the bank
1. Initial rate - based on the appraised value (AV) of the
land and insured improvements
40%
2. Final rate - based on the AV of the land and insured
70%
improvements determined by a licensed and
independent appraiser acceptable to the BSP in
accordance with BSP's terms of reference
c. Hold-outs on foreign currency deposits with the BSP
80%
- based on current market value
d. Mortgage credits (with remaining maturities of not
more than 360 days)
1. Initial rate - based on the AV of the property securing 40% of AV or
the loan evidenced by negotiable instruments or the
50% of the
outstanding balance of such loan whichever is lower
outstanding
balance
2. Final rate - based on the AV of the property securing 70% of AV or
the loan evidenced by negotiable instruments as
80% of the
determined by a licensed and independent appraiser outstanding
acceptable to the BSP in accordance with BSP's terms
balance
of reference or the outstanding balanceof such loan
whichever is lower.
e. Commercial papers ("AAA")
80%
With Surety
Pledge
but no
Negative
Pledge
80%
With
Negative
Pledge but
no Surety
Agreement
No Surety
Agreement
and no
Negative
Pledge
80%
80%
35%
65%
30%
60%
25%
55%
80%
80%
80%
35% of AV or
40% of the
outstanding
balance
65% of AV or
75% of the
outstanding
balance
30% of AV or
40% of the
outstanding
balance
60% of AV or
70% of the
outstanding
balance
25% of AV or
40% of the
outstanding
balance
55% of AV or
65% of the
outstanding
balance
80%
80%
80%
Part II - Page 50e
X272.6 - X272.7
06.12.31
Assets of stockholders and of other third parties, the latter acceptable only in instances
provided under the last paragraph of Subsec. X272.8, are acceptable as collaterals for
emergency loan with corresponding loan values, as follows:
ACCEPTABLE COLLATERALS
I. Asset of stockholders to secure new loan releases if the

bank has no available first class collaterals:
a. Unencumbered real estate
1. Initial rate - based on the AV of the land and insured
improvements
b. Government Securities
c. Commercial papers ("AAA")
II. Assets of other third parties to cover deficiency arising
from unpaid interest and liquidated damages, reduction
in loan value of existing colaterals and conversion of
overdrafts into emergency loan:
a. Unencumbered real estate
1. Initial rate - based on the AV of the land and
insured improvements
b. Government securities
c. Commercial papers ("AAA")
Other types of assets may be acceptable

as collateral for emergency loan as the
Monetary Board may approve.
The initial valuation rate shall apply in
case the appraisal reports of independent
appraiser acceptable to the BSP for real estate
collaterals are not available or not in
accordance with BSPs terms of reference or
the collaterals themselves are with rectifiable
minor deficiencies as determined by DLC,
but will be adjusted upon compliance with
the foregoing requirements.
All collateralization expenses, such as
registration fees, documentary stamps, etc.,
shall be borne by the applicant bank.
X272.7 Manner and conditions of

release. The manner and conditions of
release of emergency loan or advance shall
be as follows:
a. The grant of emergency loan or
advance shall bear the concurrent vote of
Part II - Page 50f
With Surety
Agreement
and
Negative
Pledge
With Surety
Pledge
but no
Negative
Pledge
With
Negative
Pledge but
no Surety
Agreement
No Surety
Agreement
and no
Negative
Pledge
35%
30%
25%
20%
60%
55%
50%
45%
80%
80%
80%
80%
80%
80%
80%
80%
30%
25%
20%
15%
50%
45%
40%
35%
80%
80%
80%
80%
80%
80%
80%
80%
at least five (5) members of the Monetary

Board.
b. The emergency loan or advance shall
have a ninety (90)-day availability period
from date of Monetary Board approval,
non-renewable, non-extensible. Request for
extension or renewal shall be treated as new
loan application to be evaluated by the
appropriate department of the SES if qualified
c. The amount approved by the
Monetary Board may be disbursed in one
(1) or more releases as dictated by the
needs of the bank and availability of first
class collateral.
d. The proceeds of the emergency
loan or advance shall be applied first to
the advance interest, and then to any
outstanding overdrawings that may have
been incurred by the bank in its demand
deposit with the BSP.
e. The bank shall submit to the DLC
a board resolution confirming every receipt
X272.7 - X 272.10
06.12.31
of proceeds of emergency loan or

advance. Likewise, the bank shall submit
a board resolution confirming the
undertakings executed by the officers
X272.8 Interest rates, liquidated

damages, and penalties. The interest rate
that shall be charged on emergency loan
or advance shall be based on the BSP
lending rate plus two percent (2%) per
annum. Interest shall be collected in
advance from the borrowing bank.
An additional five percent (5%) per
annum shall be imposed as liquidated
damages on the past due emergency loan
or advance.
A penalty of one-tenth of one percent
(1/10 th of 1%) per day of delay on
unremitted/delayed remittance of
collections received by the bank from
promissory notes covering the assigned
mortgage credits or the proceeds of sale
from assigned/mortgaged real estate
properties commencing on the day
following the deadline prescribed in
Subsec. X272.11 shall be imposed on the
erring bank.
Any shortfall in collateral due to unpaid
accrued interest, liquidated damages,
reduction in loan value of existing
collaterals and conversion of overdraft into
emergency loan may be covered by third
party assets after the assets of the bank
have been exhausted.
A Joint Affidavit (EL Form No. 16/16a)
between the banks chairman and
president and the corporate-mortgagors
chairman and president or the individual
mortgagor to be signed and notarized in
the BSP shall be submitted in support of
the mortgage documents. The signing shall
be photographed as well as recorded in
video tape.
X272.9 General terms and

conditions. A bank with an outstanding
emergency loan or advance shall comply
with the following conditions:
a. The bank shall not, without the
prior authorization of the Monetary Board,
expand its outstanding loans or investments
as of the date of application for emergency loan,
except for investment in government securities.
b. The bank shall not declare cash
dividends.
c. The bank shall not grant new loans
to DOSRI or to affiliates and subsidiaries.
d. The bank shall accept the BSPdesignated Comptroller to be assisted by
examiners recommended by the appropriate
department of the SES and the DLC to
monitor the operations of the bank under the
Terms of Reference as determined by the
Monetary Board.
e. The bank shall not be allowed to
avail of the BSP rediscounting facility.
f. The bank shall comply with any
other terms and conditions that may be
imposed by the Monetary Board.
X272.10 Maturity/Conditions for

renewals. The term of any emergency loan
or advance shall not exceed 180 days
including renewals.
Any request for renewal of an emergency
loan or advance shall be treated as a new
loan and shall be considered only upon the
banks compliance with the following:
a. All the requirements of the
previous tranche/s;
b. Remittance of collections/proceeds
of sales under Subsec. X272.11;
c. Payment of advance interest;
d. Submission of a duly notarized
promissory note in favor of the Bangko
Sentral; and
e. Other requirements that may be
imposed by the Monetary Board on the
borrowing bank.
Part II - Page 50g
X 272.10 - X272.12
06.12.31
The Director of the DLC shall approve

the renewal of an emergency loan or
advance.
X272.11 Remittance of collections/

repayments/arrearages. The following
shall govern remittance of collections, sale
proceeds, repayments and arrearages:
a. Total collections received on loan
accounts assigned to the BSP shall be held
in trust for, and remitted to the BSP not later
than five (5) banking days following the
date of receipt in payment of the banks
outstanding emergency loan or advance,
net of refund of interests, if any.
b. Proceeds from the sale of properties
assigned/mortgaged to the BSP shall be held
in trust for, and remitted to the BSP not later
than five (5) banking days following the date
of receipt in payment of the banks
outstanding emergency loan or advance, net
of refund of interests, if any.
For banks with emergency loan or
advance under current status, total
collections and proceeds from the sale
shall pertain to the loan value of the
mortgaged credits and properties.
For banks with emergency loan or
advance under past due status:
(1) Total collections shall pertain to
total collections from the mortgaged
credits, i.e. principal plus interest and
penalty.
(2) Proceeds from the sale shall pertain
to net proceeds from the sale of assigned/
mortgaged properties or the total BSP
claims pertaining to the sold properties,
i.e., loan value plus interest and penalty,
whichever is higher.
The bank shall ensure that adequate
records on the collections and sale made
by the branches are maintained in its Head
Office.
c. Increases in the deposit level of the
borrowing bank equivalent to the recovery
Part II - Page 50h
of the net withdrawal of deposits, shall be

remitted to the BSP or debited against the
banks demand deposit account in
payment of the emergency loan or
advance, net of refund of interest.
d. The loan value of the collaterals of
the emergency loan or advance, i.e.,
mortgaged credits and properties,
discovered by the BSP falling short of its
criteria of first class collaterals, shall be
debited against the banks DDA with the
BSP, net of refund of interest.
e. The BSP shall undertake all
necessary collection measures allowed by
law, such as foreclosure proceedings
against banks, whether operating or
closed, with past due loans.
In the event the bank fails to comply
with any of the foregoing, the DLC shall
notify, copy furnished the bank, the
borrowers of the assignment of their
outstanding loans to the BSP and advise
them to remit payment directly to the BSP
(EL Form 17).
X272.12 Default. The following shall

constitute events of default which shall
render the emergency loan or advance due
and demandable and shall be sufficient
cause for the BSP to stop further releases
of funds, without prejudice to any action
the BSP may decide to take in accordance
with R.A. No. 7653:
a. Insolvency or bankruptcy of the
bank.
b. Appointment of a receiver for the
bank.
c. The banks property and business
is taken possession of or its business
suspended or closed by the lawfully
authorized governmental agency or
authority.
d. Violation of any of the terms and
conditions of all loan and collateral
documents.
X272.12 - X273.1
06.12.31
e. Non-compliance
with
the
undertakings executed by the borrowing
bank.
accommodations to banks which establish

committed credit line in favor of corporations
proposing to issue commercial paper.
Sec. X273 Facility to Committed Credit Line

Issuers. The following guidelines shall
govern the grant by the BSP of special credit
X273.1 Nature of special credit

accommodations. The BSP may extend a
loan to any bank which on its own or as a
member of a group of banks, provides a
(Next page is Part II - Page 51)
Part II - Page 50i
X273.1 - 1277
05.12.31
committed credit line facility to a corporation

proposing to issue commercial paper.
X273.2 Conditions to access. A
bank applying for a loan pursuant to the
provisions of this Section shall submit to
the BSP documents showing that it has
extended a committed credit line to a
commercial paper issuer and that such
issuer has availed itself of said credit line.
a. Interest Rate. The rate of interest
chargeable on the availment of this credit
facility shall be that which is equivalent to
eighty percent (80%) of the total of interest
and fees received by the bank from the
issuer, net of provision for gross receipts tax
paid by the bank on such income.
b. Security. The promissory note
executed by the commercial paper issuer
in favor of the bank for the amount drawn
against the committed credit line shall be
the security for this credit facility.
c. Loan values. The loan value of paper
offered as collateral shall be eighty percent
(80%) of the amount still due and outstanding
on the paper offered as collateral.
d. Repayment period. The term of the
credit accommodation may not exceed
ninety (90) days and shall be non-renewable.
Sec. 3274
Countryside Financial
Institutions Enhancement Program for
Rural and Cooperative Banks. The CFIEP
shall be implemented under the terms of
reference indicated in Appendix 16.
Sec. X275 Recording and Reporting of
Borrowings. The banks liability for papers
discounted and/or rediscounted with
recourse with the BSP and/or other
financial institutions shall be recorded and
shown as Bills Payable in all reports
The loans and discounts, bills
purchased, acceptances and other accounts
affected by such discounting and/or
rediscounting transactions shall remain as
part of the banks loan portfolio. A footnote
in the financial statement shall indicate the
outstanding balances of the discounted and/
or rediscounted loans.
Sec. X276 Rediscounting Window for
Low-Cost Housing as Defined by the
Housing and Urban Development
Coordinating Council (HUDCC). The rules
and regulations governing the rediscounting
of housing loan papers of qualified banks
under the low-cost housing program of the
HUDCC are shown in Appendix 40.
X273.4 Ceiling. If availment of this

credit facility is outside the other rediscount
ceiling of the bank, it shall be limited to
the extent of fifteen percent (15%) of the
net worth of the bank.
Sec. 2274
Countryside Financial
Institutions Enhancement Program (CFIEP)
for Thrift Banks. The CFIEP shall be
implemented under the terms of reference
indicated in Appendix 16.
Sec. 1277 Rediscounting Window

Available to All Universal and Commercial
Banks for the Purpose of Providing
Liquidity Assistance to Investment Houses
The following implementing guidelines
shall govern the new rediscount window
available to all UBs and KBs under Section
82(c) of R.A. No. 7653, for the purpose of
providing liquidity assistance to IH:
a. Criteria for eligibility
(1) Eligible papers
Promissory note of the UB/KB executed
in favor of the BSP and secured by a Deed
of Pledge or Assignment of unencumbered/
Part II - Page 51
1277 - 3277.1
05.12.31
unhypothecated commercial papers with a

rating of triple "A" and double "A".
(2) Loan limit
Availments against this facility shall be
charged against the rediscount ceiling of the
borrowing bank (100% of net worth) as of
the end of the quarter immediately
preceding the date of application.
b. Terms and conditions
(1) The loan shall be assessed an annual
interest rate equivalent to one percent (1%)
below the weighted average of the ninetyone (91)-day Treasury Bill rate for the last
auction of the immediately preceding month.
(2) The loan shall have a term of 180
days from date of availment.
(3) The loan value shall be ninety
percent (90%) of the face value of the
commercial paper.
(4) The BSP will automatically debit the
demand deposit account of the UB/KB
upon maturity of the rediscounting loan.
(5) The chief executive officer of the
bank or his equivalent must certify that the
rediscounted commercial paper is still
outstanding as of the time of assignment.
(6) The UBs/KBs shall comply with the
documentary requirements of the DLC.
c. Duration
Qualified UBs/KBs may avail of this
facility until December 2000.
Sec. 2277 Rediscounting Window Available
to TBs for the Purpose of Providing Liquidity
Assistance to Support and Promote
Microfinance Programs. TBs availing of
rediscounting facility for purposes of
providing liquidity assistance to support and
promote microfinance programs shall comply
with the guidelines under Sec. 3277, except
for the requirement of a custodian bank under
Subsec. 3277.4a(6).
Sec. 3277
Rediscounting Window
Available to Rural and Cooperative Banks
for the Purpose of Providing Liquidity
Assistance to Support and Promote
Microfinance Programs. The following
guidelines shall govern the rediscounting
Part II - Page 52
facility available to RBs and Coop Banks

for the purpose of providing liquidity
assistance to support and promote
microfinance programs.
3277.1 Eligibility requirements
a. Eligible borrowers . RBs and Coop
Banks with at least one (1) year track record
in microfinance and at least 500 active
borrowers, ratio of past due microfinance
loans to total outstanding microfinance
loans of not more than five percent (5%)
as of end of the month preceding loan
application and collection ratio of not less
than ninety-five percent (95%) based on
ratio of total collections (excluding
prepayments) during the preceding twelve
(12)-month period to the sum of past due
microfinance loans at the beginning of said
period and amount of matured loans
including principal amortizations during
the same twelve (12) - month period.
b. Eligible papers. Promissory Note
(PN) of the RB or Coop Bank executed in
favor of the BSP and secured by duly
endorsed PN of microcredit borrowers.
c. Manual of operations. Written
policies on microfinance operations must
be set forth and documented in a policy
manual duly approved by the banks board
of directors. The manual should include
the following minimum features:
(1) Scope of microfinance activities
and the types of services or products offered
to clients;
(2) Authorities and responsibilities of:
(a) Board of directors;
(b) Management;
(c) Chief executive officer or its
equivalent;
(d) Credit officers; and
(e) Other officers involved in the
microfinance operations;
(3) Policies and procedures covering
microfinance program/project;
(4) Client evaluation process which
should involve at least: client orientation,
pre-application, credit investigation, and
loan application process;
3277.1 - 3277.3
05.12.31
(5) Loan processing, documentation

and release of proceeds;
(6) Accounts monitoring system;
(7) Accounts delinquency management;
(8) Management Information System;
(9) Accounting policies, systems and
procedures; and
(10) Internal controls and audit policies,
systems and procedures.
d. A copy of System of Reviewing
Asset Accounts and Setting Up of Adequate
Valuation Reserves submitted.
e. Staff training and experience. Key
officers and staff responsible for microcredit
operations must have a minimum
experience of one (1) year and have
completed a training course in
microlending activities.
f. Prescribed financial ratios and
regulations. Applicant bank must comply
with the following financial ratios and
regulations:
(1) Minimum capital prescribed under
Subsec. X106.1;
(2) Risk-based capital ratio of not less
than ten percent (10%);
(3) Reserves against deposit liabilities
prescribed under existing regulations;
(4) Ratio of past due direct and indirect
loans to DOSRI to the banks aggregate past
due loans of not more than ten percent (10%);
(5) Loans-to-deposits ratio of at least
seventy-five percent (75%);
(6) Reports required to be submitted to
the various departments and/or offices of
the BSP;
(7) CAMELS rating of 3 or better; and
(8) Ratio of past due loans to total loan
portfolio of not more than the industry
average for RBs as of the preceding quarter.
3277. 2 Microcredit (MCR) line
a. Application for MCR Line shall be
filed with the DLC, BSP at its head office
in Manila or the appropriate BSP Regional
Loans and Credit Unit (BSPRLCU). The
term of the MCR line shall not exceed one
(1) year from the date it is granted. The line

may be renewed for another year upon
submission of an application at least two
(2) months before expiry, subject to full
compliance with the prescribed eligibility
requirements and the credit review by the
DLC.
b. Total availments against the facility,
which shall be charged against the approved
MCR line, shall form part of the total
authorized rediscount ceiling of the borrowing
bank. The rediscount ceiling for microfinance
shall be equivalent to one hundred percent
(100%) of the banks net worth, net of
valuation reserves and other capital
adjustments as recommended by the DRB as
of the last regular examination of the bank.
c. The proceeds of availment or
drawdown against the approved MCR line
shall be credited to the account of the RB or
Coop Bank maintained with the depository
bank or with BSP. The RB or Coop Bank
shall be notified in writing/electronically of
the credit of such account on the same
banking day that the proceeds are released.
3277. 3 Terms and conditions
a. The loan value shall be equivalent
to eighty percent (80%) of the outstanding
balance of the microfinance borrowers PN.
b. The RB or Coop Banks loan from
the BSP shall have a term of not more than
360 days. The maturity date of the
microfinance borrowers PN shall in no
case be beyond the maturity date of the
RB or Coop Banks PN.
c. The loan shall be assessed an
annual interest rate equivalent to the 91day Treasury Bill rate for the last auction
date of the preceding month.
d. The demand deposit account of the
RB or Coop Bank will be automatically
debited at the maturity date of the BSP loan
for the full amount due excluding collections
from microfinance borrowers which were
credited to the Special Savings Account of the
BSP with the borrowing bank.
Part II - Page 53
3277.3 - 3277.5
05.12.31
e. Any responsible officer who is

holding a position that is not lower than
manager or equivalent rank must, upon
approval by the banks Board, endorse the
rediscounted PNs and certify that the same
are still outstanding as of the time of
application.
f. Collections made on amortizations
due and maturing PNs shall be remitted to
the DLC not later than two (2) banking days
following the date of receipt of collections
by the Head Office/branches located within
Metro Manila and not later than four (4)
banking days following the date of receipt
of collections by the Head Office/branches
located outside Metro Manila as provided
under Subsec. 3277.5.
g. A penalty of five percent (5%) per
annum shall be imposed on matured and
unpaid bank PNs in favor of the BSP.
Full compliance at all times with the
eligibility requirements as prescribed under
Subsec. 3277.1.
3277.4 Documentary requirements
a. Application for MCR Line. RBs or
Coop Banks applying for an MCR line shall
submit a letter of application to DLC or the
appropriate BSPRLCU accompanied by the
following documents:
(1) Certificate of the Secretary (original)
and copy of the resolution duly signed by
the board of directors of the applicant bank,
authorizing the bank to apply for an MCR
line with the BSP and designating the
officer authorized under Subsec. 3277.3(e)
to endorse the PNs and sign all papers
pertaining to the rediscounting line in the
prescribed format.
(2) Certification of the applicant bank
that it has complied with the financial and
regulatory ratios, conditions, and reportorial
requirements prescribed under the eligibility
requirements for rediscounting as provided
under Subsec. 3277.1.
(3) Consolidated Financial Statements.
Statement of Condition as of the end of the
Part II - Page 54
month immediately preceding the date of

application
together
with
the
corresponding Statement of Income and
Expenses covering the results of operations
for the last three (3) years.
(4) Report on required and available
reserves covering the past two (2)
consecutive weeks immediately preceding
the date of application.
(5) Rediscounting Line Agreement
executed by the CEO of the RB or Coop
Bank.
(6) Notarized custodian agreement
executed among the CEO of the RB or
Coop Bank, the third party custodian and
the BSP.
b. Availment of MCR Line. For
availment of MCR line, the RB or Coop Bank
shall submit the following documents:
(1) Application for MCR Line
Availment original and one (1) copy in
prescribed form duly accomplished and
signed by the CEO of the applicant bank;
(2) Rediscount Schedule (RS); and
(3) Notarized PNs in favor of the BSP
original and two (2) copies.
3277.5 Remittance of collections/
payments/repayments. Collections made
on amortizations due and maturing PNs
shall be remitted to the DLC not later than
two (2) banking days following the date of
receipt of collections by the Head Office/
branches located within Metro Manila and
not later than four (4) banking days
following the date of receipt of collections
by the Head Office/branches located
outside Metro Manila. As an alternative,
collections may be deposited in a Special
Savings Deposit Account (SSDA) which
shall be maintained by the BSP with the
borrower-bank and remitted to DLC or the
appropriate BSPRLCU on the last banking
day of every month. The SSDA shall earn
interest of one percent (1%) lower than the
91-day Treasury Bill rate for the last auction
date of the preceding month.
3277.5 - X281
08.12.31
On due date of the PN, the RB or Coop

Bank shall remit to the BSP the unpaid
balance of such PN: Provided, That any
amount credited to the SSDA shall be
applied as payment of the PN in favor of
BSP. The remittance shall be reported
under DLC Form No. 5. The remittance
to BSP shall be in the form of cash, demand
draft, managers check or based on
authority issued by the bank to debit its
demand deposit account with BSP. Check
payments and demand drafts shall be given
value when cleared.
3277.6 Reports required.
A
monthly report on microfinance
transactions shall be submitted to DLC or
the appropriate BSPRLCU within the
deadline set in Appendix 6.
3277.7 Accounts verification. The
microcredit accounts rediscounted shall be
subject to verification and confirmation by
authorized DLC or the appropriate
BSPRLCU representatives to determine
their eligibility and acceptability for
rediscounting.
3277.8 Sanctions. Any misrepresentation and/or violation of the
provisions of this Section shall subject the RB
or Coop Bank and/or the erring directors/
officers to any of the following sanctions:
a. Erring RB or Coop Bank
(1) Fines in amounts as may be
appropriate, but in no case to exceed Thirty
thousand pesos (P30,000) a day for each
violation;
(2) Suspension of rediscounting
and/or
(3) Reduction of rediscounting line.
b. Erring directors/officers
For violation of any of the provisions of
this Section the following shall be imposed
against the directors and officers of the bank:
(1) 1st offense - a warning that a

repetition of the same or similar offense
shall subject the erring director/officer to
monetary penalties and/or sanctions;
(2) 2nd offense - a fine of P500 per
day for each violation from the time the
violation was committed up to the time
it is corrected without prejudice,
however, to the imposition of higher
penalties; and
(3) 3rd and subsequent offenses - a
fine of P5,000 per day from the time the
violation was committed up to the time
it is corrected without prejudice,
however, to the imposition of higher
penalties.
If any of the documentary
requirements submitted by the bank as
required under Subsec. 3277.4 is found
to be false, a fine of P5,000 per day, from
the time the certification was made up to
the time the certification was found to
be false, shall be imposed against the
certifying officer.
Sec. X278 Enhanced Intraday Liquidity
Facility (ILF). The ILF is a smoothening
mechanism which is available to eligible
participant banks in the Philippine Payments
and Settlements System (PhilPaSS) to
support their liquidity requirements and
avoid payment gridlocks in PhilPaSS. The
revised features of the enhanced intraday
liquidity facility are in Appendix 21-B.
(As superseded by the MOA between the BSP, BTr, BAP and
Money Market Association of the Philippines dated 25 March 2008)

K. OTHER BORROWINGS
Sec. X281 Borrowings from the
Government. Except as may be authorized
by existing statutes, no private bank shall,
whether or not performing quasi-banking
functions, borrow any fund or money
from the Government and government
Part II - Page 55
X281 - X299
05.12.31
entities, through the issuance or sale of

its acceptances, notes or other
evidences of debt.
X281.1 Exemption from reserve
requirement. The following borrowings
shall not be subject to the reserve
requirements:
a. STDs and deposit substitutes of
specialized government banks and
private banks arising from their lending
operations under the special financing
programs of the Government and/or
international FIs; and
b. Funds held by participating
financial institutions (PFIs) under the
GSIS Housing Loan Programs:
Provided, That the agreement between
the GSIS and the conduit banks specify
that such funds may be held by the
conduit banks for a period of not more
than seven (7) calendar days prior to
their release to the borrower and prior
to the remittance by the conduit banks
of payments to the GSIS.
c. Borrowings by accredited FIs
under the Wholesale Lending Program for
SMEs of the SBGFC.
Sec. X282 Borrowings from Trust
Departments or Investment Houses
Funds borrowed by banks or non-bank
financial intermediaries performing
quasi-banking functions from trust
departments or managed funds of banks
or IHs are not considered as interbank
borrowings and therefore are subject to
the:
a. Reserve requirement on deposit
substitutes;
b. Minimum fifteen (15)-day
maturity period; and
c. Minimum trading lot rule.
Sec. X283
(Reserved)
Part II - Page 56
Sec. 1283
(Reserved)
Sec. 2283 Mortgage/CHM Certificates of

TBs. With prior approval of the Monetary
Board, TBs may issue and deal in
mortgage and CHM certificates. The rules
and regulations governing the issuance of
said certificates is shown in Appendix 17.
Sec. X284
(Reserved)

Sec. 3284 Borrowings of RBs/Coop
Banks. RBs and Coop Banks may
rediscount papers with any bank.
The obligations of RBs arising from
availments of rediscounting facilities and
other borrowings from the BSP, will be
considered as deposit substitutes.
However, with the qualification in the Tax
Code of 1997 that the term public means
borrowing from twenty (20) or more
individual or corporate lenders at any one
(1) time, it is clear that the obligations of
the RBs to BSP, which are entered in their
books as Bills Payable-BSP, do not
presently fall under the category of deposit
substitutes.
Sanctions. Any violation of the provisions
of this Part shall be subject to Sections 36
and 37 of R.A. No. 7653.
with sanctions falling under Section 37 of
R.A. No. 7653 on banks, their directors
X301 - 1301.1
07.12.31
PART THREE
LOANS, INVESTMENTS AND SPECIAL CREDITS
Section X301 Lending Policies. It shall
be the responsibility of the board of
directors of a bank to formulate written
policies on the extension of credit and risk
diversification and to set the guidelines for
evaluation of risk assets. Well-defined
lending policies and sound lending practices
are essential if a bank is to perform its lending
function effectively and minimize the risk
inherent in any extension of credit. The
responsibility should be approached in a way
that will provide assurance to the public, the
stockholders and supervisory authorities that
timely and adequate action will be taken to
maintain the quality of the loan portfolio and
other risk assets.
X301.1 (Reserved)
1301.1 Rules and regulations to govern
the development and implementation of
banks internal credit risk rating systems
a. Statement of policy. It is the policy
of the BSP to ensure that banks credit risk
management processes are sound and
effective. Towards this end, the following
rules and regulations that shall govern the
use of banks internal credit risk rating
systems are hereby prescribed.
b. Scope. UBs and KBs must have in
place a formal internal credit risk rating
system for the underwriting and ongoing
administration, initially, of corporate credit
exposures. The internal credit risk rating
system must be appropriate to a banks
nature, complexity and scale of activities.
Initially and until such time that the
Monetary Board prescribes otherwise,
corporate credit exposure shall be defined
as exposures to companies with assets of
more than P15.0 million.
c. Minimum operational requirements

(1) A banks internal credit risk rating
system must be duly approved by the board
of directors (or equivalent management
committee in the case of Philippine
branches of foreign banks). The board
should exercise appropriate oversight over
the system in a consistent manner.
system must be operationally integrated into
its internal credit risk management process.
Its output should accordingly be an integral
part of the process of evaluation and review
of prospective and existing exposures,
respectively. Credit underwriting criteria
should become progressively more
conservative as credit rating declines. All
credit decisions must be supported by a
written assessment. In the context of
ongoing review, provisioning standards
must be rationally tied to the internal credit
rating system.
(3) Banks must have an independent
credit risk control function that is
responsible for the design, implementation
and performance of their credit risk rating
systems. The credit risk control function
must be independent from the business
functions responsible for originating
exposures.
(4) Internal ratings must be an essential
part of annual or more frequent reporting
of banks changing portfolio quality over
time to the board of directors (or equivalent
management committee in the case of
Philippine branches of foreign banks).
Reporting must include portfolio
breakdown by credit grade, major portfolio
segments breakdown by credit grade, and
analysis of realized default rates against
expectations.
Part III - Page 1
1301.1
07.12.31
(5) Internal and external audit must also

review at least annually the banks internal
rating system and its operations, including the
operations of the credit risk control function.
d. Minimum technical standards
(1) Banks must fully document their
internal credit risk rating systems. The
documentation must address topics such as
coverage, rating criteria, responsibilities of
parties involved in the ratings process,
definition of what constitutes a rating
exception, parties that have authority to
approve exceptions, frequency of rating
reviews, and management oversight of the
rating process. A bank must document the
rationale for its choice of rating criteria and
must be able to provide analyses
demonstrating that the rating criteria and
procedures are likely to result in ratings that
meaningfully differentiate risk.
(2) The rating criteria should reflect an
established blend of qualitative and
quantitative factors. Transparent ranges need
to be set for the quantitative standards based
on experience. The quantitative criteria must
include leverage and cash flow standards.
(3) Banks must maintain rating histories
on individual accounts, which shall include
the ratings of the account, the dates the
ratings were assigned, the methodology and
key data used to derive the ratings and the
analyst who gave the ratings. The identity
of borrowers and facilities that default, and
the timing and circumstances of such
defaults, must be retained. Banks must also
retain data on the realized default rates
associated with rating grades and ratings
migration in order to eventually track the
predictive power of the risk rating system.
system must have a minimum of 6 rating
grades for unclassified accounts and 4 rating
grades for classified accounts, which must be
assigned in a consistent manner over time.
Moreover, the rating system must result in a
meaningful distribution of exposures across
grades with no excessive concentrations on
a single rating grade.
Part III - Page 2
(5) The ratings output of banks internal

credit risk rating systems must contain both
a borrower and a facility dimension. The
borrower dimension should focus on
factors that affect the inherent credit quality
of each borrower. The facility dimension,
on the other hand, should focus on security/
collateral arrangements and other similar
risk influencing factors of each transaction.
(6) In rating corporate borrowers with
total assets of more than P15.0 million, only
financial statements audited by external
auditors that are accredited/selected by the
SEC, the BSP or the Insurance Commission
(IC) shall be used starting with the annual
financial statements ending 31 December
2006.
e. Definition of default and loss. In
connection with the data collection
exercise prescribed under this Subsection,
banks shall be guided by the following
standard definitions of default and loss:
(1) Definition of default
A default is considered to have
occurred in the following cases:
(a) If a credit obligation is considered
non-performing under existing rules and
regulations;
(b) If a borrower/obligor has sought or
has been placed in bankruptcy, has been
found insolvent, or has ceased operations
in the case of businesses;
(c) If the bank sells a credit obligation
at a material credit-related loss, i.e.,
excluding gains and losses due to interest
rate movements. Banks board-approved
internal policies that govern the use of their
internal rating systems must specifically define
when a material credit-related loss occurs; and
(d) If a credit obligation of a borrower/
obligor is considered to be in default, all
credit obligations of the borrower/obligor
with the same bank shall also be considered
to be in default.
(2) Definition of loss
Loss, for purposes of accumulating data
on loss in the event of default, refers to
economic loss. It must therefore include
1301.1 - X301.6
07.12.31
discount effects, as well as direct and

indirect costs associated with collecting on
the credit obligation. Banks boardapproved internal policies that govern the
use of their internal rating systems must
include specific policies and procedures
that should be followed in the
determination of economic loss.
f. Timetable for implementation
(1) Banks
must
submit
an
implementation plan to the appropriate
department of the SES no later than 31 July
2004. A monetary penalty of P10,000 per
day shall be imposed for delay until such
plan is submitted.
(2) A fully documented internal credit
risk rating system, duly approved by the
board of directors, must be submitted to the
BSP not later than 31 December 2004.
Upon submission of the system, all
prospective and existing corporate accounts
must immediately be evaluated and
monitored according to such system. A
monetary penalty of P10,000 per day shall
be imposed for delay until this requirement
is complied with.
(As amended by Circular No. 585 dated 15 October 2007 and
531 dated 17 May 2006)

X301.6 Large exposures and credit
risk concentrations. The following
guidelines shall govern managing large
exposures and credit risk concentrations in
line with the objective of strengthening risk
management in the banking system.
a. General principles
(1) A bank can be exposed to various
forms of credit risk concentration which if
not properly managed may cause
significant losses that could threaten its
financial strength and undermine public
confidence in the bank.
(2) Credit risk concentrations may arise
from excessive exposures to individual
counterparties, groups of related
counterparties and groups of counterparties
with similar characteristics (e.g.,

counterparties in specific geographical
locations, economic or industry sectors).
(3) Diversification of risk is essential in
banking. Many past bank failures have been
due to credit risk concentrations of some
kind. It is essential for banks to prevent
undue credit risk concentrations from
excessive exposures to particular
counterparties, industries, economic
sectors, regions or countries.
(4) While concentration of credit risks
are inherent in banking and cannot be
totally eliminated, they can be limited and
reduced by adopting proper risk control and
diversification strategies. Safeguarding
against credit risk concentrations should
form an important component of a banks
risk management system.
(5) The board of directors of a bank
shall be responsible for establishing and
monitoring compliance with policies
governing large exposures and credit risk
concentrations of the bank. The board
should review these policies regularly (at
least annually) to ensure that they remain
adequate and appropriate for the bank.
Subsequent changes to the established
policies must be approved by the board.
(6) The policy on large exposures and
credit risk concentrations shall, at a
minimum, cover the following:
(a) Exposure limits that are reasonable
in relation to capital and resources for
(i) Various types of borrowers/
counterparties (e.g., government, banks and
other FIs, corporate and individual borrowers);
(ii) A group of related borrowers/
counterparties;
(iii) Individual industry sectors;
(iv) Individual countries; and
(v) Various types of investments.
(b) The circumstances in which the
above limits can be exceeded and the party
authorized to approve such excesses, e.g.,
the banks board of directors or credit
committee with delegated authority from
the board.
Part III - Page 3
X301.6
06.12.31
(c) The delegation of credit authority

within the bank for approving large
exposures;
(d) The procedures for identifying,
reviewing, managing and reporting large
exposures of the bank;
(e) The definition of exposure. Banks
should take into account the nature of their
business and the complexity of their
products. In any case, a banks exposures
to a counterparty should include its on and
off-balance sheet exposures and indirect
exposures; and
(f) The criteria to be used for
identifying a group of related persons;
(7) The board and senior management
of a bank should ensure that:
(a) Adequate systems and controls are
in place to identify, measure, monitor and
report large exposures and credit risk
concentrations of the bank in a timely
manner; and
(b) Large exposures of the bank are kept
under regular review. Large exposures
shall refer to exposures to a counterparty or
a group of related counterparties equal or
greater than five percent (5%) of banks
qualifying capital as defined under Section
X116.
(8) A bank should, where appropriate,
conduct stress testing and scenario analysis
of its large exposures to assess the impact
of changes in market conditions or key risk
factors (e.g. economic cycles, interest rate,
liquidity conditions or other market
movements) on its profile and earnings.
(9) It is expected that banks would
generally observe a lower internal single
borrowers limit than the prescribed limit
of twenty-five percent (25%) as a matter of
sound practice.
b. Monitoring of large exposures/credit
risk concentrations
(1) Banks should have a central liability
record (preferably based on automated
system) for each loan exposure. Banks
should be able to monitor such exposures
against prescribed and internal limits on a
daily basis.
Part III - Page 4
(2) Every bank should have adequate

management information and reporting
systems that enable management to identify
credit risk concentrations within the asset
portfolio of the bank or of the group
(including subsidiaries and overseas
branches) on a timely basis. If a
concentration does exist, banks should
reduce it in accordance with their
prescribed policies. Large exposures
shall be subject to more intensive
monitoring.
(3) Banks should ensure that their
internal or external auditors conduct at least
an annual review of the quality of large
exposures and controls to safeguard against
credit risk concentrations. Their review
should ascertain whether:
(a) The banks relevant policies, limits
and procedures are complied with; and
(b) The existing policies and controls
remain adequate and appropriate for the
banks business.
(4) Management should take prompt
corrective action to address concerns and
exceptions raised.
(5) There should also be an
independent compliance function to ensure
that all relevant internal and prescribed
requirements and limits are complied
with.
Breaches of prescribed
requirements and deviations from
established policies and limits should be
reported to senior management in a
timely manner.
c. Unsafe and unsound practice
Non-observance of the principles and
the requirements of Items a and b above
may be a ground for a finding of unsafe and
unsound practice under Section 56 of the
General Banking Law of 2000 (Appendix
48) and may be subject to appropriate
sanction as may be determined by the
Monetary Board.
d. Notification requirements
A bank must inform BSP immediately
when it has concerns that its large exposures
or credit risk concentrations have the
potential to impact materially upon its
X301.6 - X302.2
08.12.31
capital adequacy, along with proposed

measures to address these concerns.
e. Reporting
Banks records on monitoring of large
exposures shall be made available to the
BSP examiners for verification at any
given time. When warranted, the BSP
may impose additional reporting
requirements on bank in relation to its
large exposures and credit risk
concentrations.
f. Sanction
Any failure or delay in complying with
the requirements under Items d and e
of this Subsection shall be subject to
penalty applicable to those involving
major reports.
Sec. X302 Loan Portfolio and Other Risk
Assets Review System. To ensure that
timely and adequate management action
is taken to maintain the quality of the loan
portfolio and other risk assets and that
adequate loss reserves are set up and
maintained at a level sufficient to absorb
the loss inherent in the loan portfolio and
other risk assets, each bank shall establish
a system of identifying and monitoring
existing or potential problem loans and
other risk assets and of evaluating credit
policies vis--vis prevailing circumstances
and emerging portfolio trends.
Management must also recognize that
loss reserve is a stabilizing factor and that
failure to account appropriately for losses
or make adequate provisions for
estimated future losses may result in
misrepresentation of the banks financial
condition.
The system of identifying and
monitoring problem loans and other risk
assets and setting up of allowances for
probable losses shall include, but is not
limited to, the guidelines mentioned in
Appendix 18.
(As amended by Circular Nos. 622 dated 16 September 2008,
603 dated 03 March 2008 and 520 dated 20 March 2006)
X302.1 Provisions for losses; booking

The board of directors of banks are
responsible for ensuring that their institutions
have controls in place to determine the
allowance for probable losses on loans, other
credit accommodations, advances and other
assets consistent with the institutions
stated policies and procedures, generally
accepted accounting principles (GAAP), the
BSP rules and regulations and the safe and
sound banking practices. The board of
directors, in fulfilling this responsibility,
shall require management to develop and
maintain an appropriate, systematic and
uniformly applied process consistent and
in compliance with existing BSP rules and
regulations to determine the amount of
reserves for bad debts or doubtful accounts
or other contingencies.
The specific allowance for probable
losses for classified loans and other risk
assets and the general loan loss provision
as required in Appendix 18 shall be set up
immediately.
X302.2 Sanctions. Non-compliance
with the requirement to book valuation
reserves required under the preceding
Subsection shall be a ground for the
imposition of any or all of the following
sanctions:
a. Denial of the request for authority
to establish new banking offices regardless
of type or category;
b. Denial of access to BSP credit
facilities except as may be allowed under
Section 84 of R. A. No. 7653; and
c. Fine of P10,000 a day for UBs and
KBs, P5,000 for TBs and P500 for RBs/Coop
Banks, counted as follows:
(1) from the date the bank has been
informed that the recommendation of the
appropriate department of the SES has been
confirmed by the Monetary Board up to the
date that said recommended valuation
reserves had been actually booked, in the
case of allowance for probable losses for
Part III - Page 5
X302.2 - X303
05.12.31
loans and other risk assets classified as

substandard unsecured, doubtful and loss as
required by the BSP; and
(2) from the dates prescribed under this
Section up to the date of the actual booking
in cases of the two percent (2%) general
provision for probable losses, the twenty-five
percent (25%) allowance for probable losses
on secured loans classified as substandard,
and the five percent (5%) allowance for
probable losses on loans especially
mentioned.
A. LOANS IN GENERAL
Sec. X303 Credit Exposure Limits to a
Single Borrower
a. Consistent with national interest, the
total amount of loans, credit accommodations
and guarantees that may be extended by a
bank to any person, partnership, association,
corporation or other entity shall at no time
exceed twenty five percent (25%) of the
net worth of such bank. The basis for
determining compliance with the single
borrowers limit (SBL) is the total credit
commitment of the bank to or on behalf of
the borrower.
b. The total amount of loans, credit
accommodations and guarantees
prescribed in the first paragraph may be
increased by an additional ten percent
(10%) of the net worth of such bank:
Provided, That the additional liabilities are
adequately secured by trust receipts,
shipping documents, warehouse receipts or
other similar documents transferring or
securing title covering readily marketable,
non-perishable goods which must be fully
covered by insurance.
c. The above prescribed ceilings shall
include: (1) the direct liability of the maker
or acceptor of paper discounted with or sold
to such bank and the liability of a general
endorser, drawer or guarantor who obtains
a loan or other credit accommodation from
or discounts paper with or sells papers to
such bank; (2) in the case of an individual
Part III - Page 6
who owns or controls a majority interest

in a corporation, partnership, association or
any other entity, the liabilities of said
entities to such bank; (3) in the case of a
corporation, all liabilities to such bank of
all subsidiaries in which such corporation
owns or controls a majority interest; and
(4) in the case of a partnership, association
or other entity, the liabilities of the
members thereof to such bank.
d. Even if a parent corporation,
partnership, association, entity or an
individual who owns or controls a majority
interest in such entities has no liability to
the bank, the liabilities of subsidiary
corporations or members of the
partnership, association, entity or such
individual shall be combined under certain
circumstances, including but not limited to
any of the following situations: (1) the
parent
corporation,
partnership,
association, entity or individual guarantees
the repayment of the liabilities; (2) the
liabilities were incurred for the
accommodation of the parent corporation
or another subsidiary or of the partnership
or association or entity or such individual;
or (3) the subsidiaries though separate
entities operate merely as departments or
divisions of a single entity.
e. For purposes of this Section, loans,
other credit accommodations and
guarantees shall exclude: (1) loans and
other credit accommodations secured by
obligations of the BSP or of the Philippine
Government; (2) loans and other credit
accommodations fully guaranteed by the
government as to the payment of principal
and interest; (3) loans and other credit
accommodations secured by U.S. Treasury
Notes and other securities issued by central
governments and central banks of foreign
countries with the highest credit quality
given by any two (2) internationally
accepted rating agencies; (4) loans and
other credit accommodations to the extent
covered by the hold-out on or assignment
of, deposits maintained in the lending bank
X303 - X303.1
05.12.31
and held in the Philippines; (5) loans, credit

accommodations and acceptances under
letters of credit to the extent covered by
margin deposits; and (6) other loans or
credit accommodations which the
Monetary Board may from time to time
specify as non-risk items.
f. The wholesale lending activities of
government banks to participating financial
institutions (PFIs) for relending to end-user
borrowers shall at no time exceed a
separate limit of thirty-five percent (35%)
of net worth, subject to the following
guidelines: (1) it shall apply only to loans
granted to PFIs on a wholesale basis for
on-lending to end-user borrowers; (2) it
shall apply only to loan programs funded
by multilateral, international or local
development agencies, organizations or
institutions especially designed for
wholesale lending activities of government
banks; (3) the end-user borrowers of the
PFIs shall be subject to the twenty-five
percent (25%) SBL, not the increased
ceiling of thirty-five percent (35%); and (4)
government banks shall observe
appropriate criteria for accrediting PFIs and
for the grant/renewal of credit lines to
accredited PFIs.
g. Loans
and
other
credit
accommodations as well as deposits
maintained with, and usual guarantees by
a bank to any other bank or non-bank entity,
whether locally or abroad, shall be subject
to the limits as herein prescribed.
Deposits of RBs/Coop Banks with
government-owned or controlled financial
institutions like the LBP and the DBP shall
not be covered by the SBL imposed under
R.A. No. 8791.
In municipalities and cities where
there are no government banks, the
deposits of RBs/Coop Banks in private
banks in said areas shall not be subject to
the SBL. Deposits in private banks located
in other municipalities/cities shall be
covered by the SBL.
The outstanding balance of the deposit

in a private depository bank being used by
the TBs/RBs/Coop Banks with authority to
accept/create demand or current deposits,
to fund checks cleared through the said
private depository bank shall also be
exempt from the SBL even if there is a
government-owned or controlled financial
institution in the area.
purposes of this Section, the following
definitions shall apply:
a. Total credit commitment shall
include outstanding loans and other credit
accommodations, deferred letters of credit
less margin deposits, and guarantees.
Except as specifically provided, total credit
commitment shall be reckoned on credit
risk-weighted basis consistent with existing
regulations.
b. Loans shall refer to all the accounts
under the loan portfolio of a bank as
enumerated in the Manual of Accounts for
Banks.
c. Other credit accommodations shall
refer to credit and specific market risk
exposures of banks arising from
accommodations other than loans such as
receivables (sales contract receivables,
accounts receivables and other receivables),
and debt securities booked as investments.
d. Bank guarantee. A bank guarantee
is an irrevocable commitment of a bank
binding itself to pay a sum of money in the
event of non-performance of a contract by
a third party. The guarantee is a
commitment separate and distinct from the
principal debt or contract.
e. Net worth shall mean the total of
the unimpaired paid-in capital including
paid-in surplus, retained earnings and
undivided profit, net of unbooked valuation
reserves and other adjustments as may be
f. Qualifying capital shall mean
capital under Sec. X116.
Part III - Page 7
X303.1
05.12.31
g. The term control of majority

interest shall be synonymous to
controlling interest and exists when the
parent owns directly or indirectly through
subsidiaries more than one half of the
voting power of an enterprise unless, in
exceptional circumstance, it can be clearly
demonstrated that such ownership does
not constitute control. Control of majority
interest may also exist even when the
parent owns one-half or less of the voting
power of an enterprise when there is:
(1) Power over more than one-half of
with other investors; or
(2) Power to govern the financial and
operating policies of the enterprise under
a statute or an agreement; or
(3) Power to appoint or remove the
majority members of the board of directors
or equivalent governing body; or
(4) Power to cast the majority votes at
(5) Any other arrangement similar to
any of the above.
h. Subsidiary shall refer to a
controlled or held with power to vote by
its parent corporation.
i. Credit risk transfer shall refer to any
arrangement that allows the bank to transfer
the credit risk associated with its loan or
other credit accommodation to a third party.
j. Readily marketable goods shall
mean articles of commerce, agriculture or
industry of such uses as to make them the
subject of constant dealings in ready
markets with such frequent quotations as
to make their prices easily and definitely
ascertainable, or which lend themselves
easily to disposal by sale at any time to pay
the obligations secured by the said goods.
k. Bill of exchange drawn in good
faith against actually existing values shall
Part III - Page 8
mean one (1) which is drawn by a seller

on the purchaser for the purchase price of
commodities sold. A bill of exchange,
whether drawn against goods for exports
or against goods to be sold locally, which
is discounted or purchased by a bank is a
bill drawn against existing values only
when it is accompanied by shipping
documents, warehouse receipts or other
papers, securing title to the goods sold.
However, bills of exchange drawn in good
faith against actually existing values as
defined in this paragraph, which are past
due or the maturities of which have been
extended, shall be considered as
additional loans authorized under the
second paragraph of this section and shall
be subject to the ten percent (10%)
limitation provided therein.
l. Commercial or business paper
actually owned by the person negotiating
the same shall mean a paper arising from
an actual business transaction. A trade
acceptance or promissory note actually
owned by the person negotiating the same
is a commercial or a business paper.
However, if a bill is drawn against an agent
or fictitious drawee, or if a promissory note
is executed by an agent or fictitious
drawee, neither is a commercial nor a
business paper. Commercial or business
papers actually owned and discounted by
the person negotiating the same, which are
past due or the maturity of which have been
extended, shall be considered as money
borrowed and shall be subject to the
limitation of twenty-five percent (25%)
provided in the first paragraph of this
Section: Provided, That commercial or
business papers purchased by banks from
SMEs which became past due or the
maturities of which have been extended,
shall be considered additional loan by the
bank to the purchaser of goods or services
from the SME and shall be entitled to an
increased SBL equivalent to ten percent
(10%) of the net worth of the concerned
X303.1 - X303.4
07.12.31
bank if the purchasers are companies with

credit ratings of at least AA- or equivalent
from a BSP-recognized rating agency.
X303.2 Rediscounted papers
included in loan limit. The liabilities to the
bank of borrowers whose papers were
rediscounted by banks with the BSP shall
not be deemed as having been
extinguished by the rediscount, but shall
be considered as still existing and shall be
included in determining the SBL until such
papers are paid by the borrowers.
X303.3 Credit risk transfer. Subject
to prior approval of the BSP, loans and
other credit accommodations covered by
a legally effective credit risk transfer
arrangement such as guarantee, letter of
indemnity, standby letter of credit or credit
derivative, may be excluded from the total
credit commitment of the bank to a
borrower in reckoning compliance with
the SBL.
X303.4 Exclusions from loan limit
a. The discount of bills of exchange
drawn in good faith against actually existing
values, and the discount of commercial or
business paper which are actually owned
by the person, company, corporation or
association negotiating the same;
b. Credit accommodations to finance
the importation of rice and corn to the
extent of 100% of the net worth of the bank
concerned shall be excluded in
determining the SBL prescribed herein,
(1) The importation shall be made in
pursuance of a national policy duly
enunciated by the National Government;
(2) The importation shall have been
approved by the National Economic
Development Authority (NEDA);
(3) The letter of credit shall specify that
importation shall be made with certification
from the National Food Authority (NFA), or
the consular establishment of the Philippine

government at the source of any
suchestablishment of the Philippine
government at the source of any such
shipment to the effect that the commodity
being imported is either rice or corn; and
(4) The related bills of lading shall
specify in addition to the name of the
importer concerned, that the NFA shall be
the consignee of the shipment;
c. The portion of loans and other
credit accommodations covered by the
guarantee of IGLF;
d. The total liabilities of a commercial
paper issuer for commercial paper held by
a UB as a firm underwriter shall not be
counted in determining compliance with
the SBL within a period of 180 days from
the acquisition of the commercial paper by
the UB: Provided, That in no case shall such
liabilities exceed five percent (5%) of the
net worth of the UB beyond the normal
applicable SBL;
e. The portion of loans and other
credit accommodations covered by
guarantees of international/regional
institutions/multi-lateral FIs where the
Philippine Government is a member/
shareholder, such as the IFC and the ADB;
f. Loans
and
other
credit
accommodations or portion thereof,
specifically provided for with valuation
reserve: Provided, That the bank has no
unbooked valuation reserves;
g. Loans
and
other
credit
accommodations as a result of an
underwriting or sub-underwriting agreement
of debt securities outstanding for a period not
exceeding thirty (30) calendar days;
h. Loans granted to foreign
embassies. These loans are considered as
loans to their respective central
governments and as such shall be
considered non-risk; and
i. Foreign securities lending under
Sec. X531 and other domestic securities
lending programs duly recognized by the
Part III - Page 9
X303.4 - X304.1
08.12.31
BSP containing safeguards consistent with

best international practices, to protect
securities lenders risk exposures.
(As amended by Circular Nos. 578 dated 17 August 2007 and
550 dated 17 November 2006)

to the following:
a. Monetary penalties - Fines of onetenth of one percent (1/10 of 1%) of the
excess over the ceiling but not to exceed
P30,000.00 a day for each SBL violation
shall be assessed on the bank to be
reckoned from the date the excess started
up to the date when such excess was
eliminated: Provided, That a maximum
fine of P500.00 a day for each violation
shall be imposed against banks with total
resources of less than P50.0 million at the
time of granting of loan/credit
accommodation.
b. Other sanctions
First Offense Reprimand for the
directors/officers who approved the credit
availment which resulted in the excess
with a warning that subsequent violations
will be subject to more severe sanctions.
Subsequent offenses
(1) Fine of P1,000.00 for directors/officers
who approved the credit availment which
resulted in the excess.
(2) Suspension of the banks
branching privileges and access to BSP
rediscounting facilities until the excess
is eliminated.
(3) Other penalties as the Monetary
Board may impose depending on the
gravity of the offense.
Transitory provision. Outstanding
credit commitments of a bank as of 02 May
2004 which are within the ceiling
prescribed under the regulations existing
prior to said date but will exceed the
limitations prescribed in this Section shall
not be subject to penalty for a period of one
(1) year or until said credit commitments
Part III - Page 10
become past due or are extended, renewed

or restructured whichever comes later. Said
credit commitments shall, however, be
reported to the BSP within fifteen (15)
banking days from 02 May 2004.
X303.8 Limit for wholesale lending
activities of government banks. There
shall be a separate SBL of thirty-five percent
(35%) of unimpaired capital and surplus for
the wholesale lending activities of
government banks to PFIs for relending to
end-user borrowers, subject to the
a. Government banks SBL of thirty-five
percent (35%) of unimpaired capital and
surplus shall apply only to loans granted
to PFIs on a wholesale basis for on-lending
to end-user borrowers;
b. The thirty-five percent (35%) SBL
shall apply only to loan programs funded
by multilateral, international or local
developmental agencies, organizations or
institutions specially designed for
wholesale lending activities of government
banks;
c. The end-user borrowers of the PFIs
shall be subject to the twenty-five percent
(25%) SBL, not to the increased ceiling of
thirty-five percent (35%); and
d. Government banks shall observe
the minimum criteria for accrediting PFIs
and for the grant/renewal of credit lines to
accredited PFIs as set forth in Appendix 41.
Sec. X304 Grant of Loans and Other
Credit Accommodations. The following
regulations shall be observed in the grant
of loans and other credit accommodations.
X304.1 General guidelines. Consistent
with safe and sound banking practices, a
bank shall grant loans or other credit
accommodations only in amounts and for
the periods of time essential for the
X304.1
08.12.31
effective completion of the operation to be

financed.
Before granting loans or other credit
accommodations, a bank must ascertain
that the borrower, co-maker, endorser, surety
and/or guarantor, if applicable, is/are
financially capable of fulfilling his/their
commitments to the bank. For this purpose,
a bank shall obtain adequate information
on his/their credit standing and financial
capacities.
In addition to the usual information sheet
about the borrower, a bank shall require from
the credit applicant the following:
a. A copy of the latest ITR of the
borrower and his co-maker, if applicable,
duly stamped as received by the BIR;
b. Except as otherwise provided by law
and in other regulations, if the borrower is
engaged in business, a copy of the borrowers
latest financial statements as submitted for
taxation purposes to the BIR; and
c. A waiver of confidentiality of client
information and/or an authority of the bank
to conduct random verification with the BIR
in order to establish authenticity of the ITR
and accompanying financial statements
submitted by the client.
The documents under Items a and
b above shall be required to be submitted
annually for as long as the loan and/or
credit accommodation is outstanding. The
consistency of the data/figures in said ITRs
and financial statements shall also be
checked and considered in the evaluation
of the financial capacity and
creditworthiness of credit applicants. The
waiver of confidentiality of client
information and/or an authority of the bank
to conduct random verification with the
BIR need not be submitted annually since
once submitted these documents remain
valid unless revoked.
Should the document(s) submitted
prove to be spurious or incorrect in any
material detail, the bank may terminate any
loan or other credit accommodation
granted on the basis of said document(s)

and shall have the right to demand
immediate repayment or liquidation of the
obligation. Moreover, the bank may seek
redress from the court for any harm done
by the borrowers submission of spurious
documents.
The required submission of additional
documents shall cover loans, other credit
accommodations, and credit lines granted,
restructured, renewed or extended after
02 November 2006 including any
availment and/or re-availment against
existing credit lines, except:
(1) Microfinance loans. This represents
small loans granted to the basic sectors such
as farmer-peasant, artisanal fisherfolk,
workers in the formal and informal sector,
migrant workers, indigenous peoples and
cultural communities, women, differentlyabled persons, senior citizens, victims of
calamities and disasters, youth and students,
children, and urban poor, as defined in the
Social Reform and Poverty Alleviation Act
of 1997 (R.A. No. 8425), and other loans
granted to poor and low-income households
for their microenterprises and small
businesses. The maximum principal amount
of microfinance loans shall not exceed
P150,000 and may be amortized on a
daily, weekly, semi-monthly or monthly
basis, depending on the cash flow
conditions of the borrowers. Said loans are
usually unsecured, for relatively short
periods of time (180 days) and often
featuring joint and several guarantees of
one (1) or more persons;
(2) Loans to registered Barangay
Micro-Business Enterprises (BMBEs);
(3) Interbank loans;
(4) Loans secured by hold-outs on or
assignment of deposits or other assets
considered non-risk by the Monetary
Board;
(5) Loans to individuals who are not
required to file ITRs under BIR regulations,
as follows:
Part III - Page 11
X304.1 - X304.2
08.12.31
(a) Individuals
whose
gross
compensation income does not exceed
their total personal and additional
exemptions, or whose compensation
income derived from one (1) employer
does not exceed P60,000 and the income
tax on which has been correctly withheld;
(b) Those whose income has been
subjected to final withholding tax;
(c) Senior citizens not required to file
a return pursuant to R.A. No. 7432, as
amended by R.A. No. 9257, in relation to
the provisions of the National Internal
Revenue Code (NIRC) or the Tax Reform
Act of 1997; and
(d) An individual who is exempt from
income tax pursuant to the provisions of
the NIRC and other laws, general or special;
and
(6) Loans to borrowers, whose only
source of income is compensation and the
corresponding taxes on which has been
withheld at source: Provided, That the
borrowers submitted, in lieu of the ITR, a
copy of their Employers Certificate of
Compensation Payment/Tax Withheld (BIR
Form 2316) or their payslips for at least
three (3) months immediately preceding
the date of loan application.
Loans to micro and small enterprises
which are not specifically exempted from
the additional documentary requirements
specified under the third paragraph of this
Subsection shall be exempted from said
additional documentary requirement up to
31 December 2011.
Consumer loans, with original amounts
not exceeding P2.0 million, are exempted
from updating requirements or the required
annual submission of the same requirements
forwarded during the initial submission
under this Subsection but not in their
restructuring, renewal, or extensions or
availment/re-availment against existing
credit lines: Provided, That these loans are
supported by ITRs or by BIR Form 2316 or
payslips for at least three (3) months
immediately preceding the date of loan
Part III - Page 12
application, and financial statements

submitted for taxation purposes to the BIR,
as may be applicable, at the time the loans
were granted, restructured, renewed, or
extended.
following definitions shall apply:
1. Micro and small enterprises shall
be defined as any business activity or
enterprise engaged in industry,
agribusiness and/or services whether single
proprietorship, cooperative, partnership or
corporation whose total assets, inclusive of
those arising from loans but exclusive of
the land on which the particular business
entitys office, plant and equipment are
situated, must have a value of up to P3.0
million and P15.0 million, respectively, or
as may be defined by the SMED Council
or other competent government agency.
2. Consumer loans is defined to
include housing loans, loans for purchase
of car, household appliance(s), furniture
and fixtures, loans for payment of
educational and hospital bills, salary loans
and loans for personal consumption,
including credit card loans.
(As amended by Circular Nos. 622 dated 16 September 2008
and 549 dated 09 October 2006)
X304.2 Purpose of loans and other

credit accommodations. Before granting
a loan or other credit accommodation,
banks shall ascertain the purpose of the loan
or other credit accommodation which shall
be clearly stated in the application and in
the contract between the bank and
borrower. The proceeds of a loan or other
credit accommodation shall be utilized only
for the purpose(s) stated in the application
and contract; otherwise, the bank may
terminate the loan or other credit
accommodation and demand immediate
repayment of the obligation. Notwithstanding
the preceding sentence, the proceeds of a
loan or other credit accommodation may
be utilized by the borrower for a purpose(s)
other than that originally stated in the
X304.2 - X305.2
08.12.31
application and contract: Provided, That

such other purpose(s) is/are among those
for which the lending bank may grant loans
and other credit accommodations under
existing laws and regulations: Provided,
further, That such utilization shall be with
prior written approval of duly authorized
officer(s)/committee/board of directors of
the lending bank and such written approval
shall form part of the contract between the
bank and the borrower.
X304.3 Prohibited use of loan
proceeds. Banks are prohibited from
requiring their borrowers to acquire shares
of stock of the lending bank out of the loan
or other credit accommodation proceeds
from the same bank.
requiring the submission of a Comfort Letter

from the visa holders employer, limiting the
term of the loan to the period of the visas
validity, submission of SIRV identification
card, as well as subjecting the visa holder to
the usual credit processes/requirements; and
b.
Embassy officials [foreign
diplomats and career consular officials and
employees who are physically residing in
the Philippines for a term of one (1) year
or more]: Provided, That such loans shall
be limited to consumer loans, including
credit cards, auto loans, appliance loans and
others that may henceforth be allowed by
the Monetary Board: Provided, further, That
the lending bank institutes measures to
mitigate credit risk such as requiring the
submission of a Comfort Letter from the
Embassy employing said officials.
X304.4 Signatories. Banks shall

require that loans and other credit
accommodations be made under the signature
of the principal borrower and, in the case of
unsecured loans and other credit
accommodations to an individual borrower, at
least one (1) co-maker, except that a co-maker
is not required when the principal borrower
has the financial capacity and a good track
record of paying his obligations.
(M-2007-021 dated 15 August 2007)
X305.1 Rate of interest in the

absence of stipulation. The rate of interest
for the loan or forbearance of any money,
goods or credits and the rate allowed in
judgments, in the absence of expressed
contract as to such rate of interest, shall be
twelve percent (12%) per annum.
X304.5-X304.8 (Reserved)
X304.9 Policies on loans to nonimmigrants and embassy officials. Banks
are allowed to extend peso loans to the
following:
a. Non-immigrants holding visas
issued under Secs. 9(d) and 9(g) of the
Immigration Act of 1940, Special Investors
Resident Visa (SIRV) and visas issued by the
Philippine Economic Zone Authority:
Provided, That such loans shall be limited to
peso consumer loans including credit cards,
auto loans and appliance loans, but excluding
real estate or housing loans: Provided,
further, That the lending bank institutes
measures to mitigate credit risk such as
Sec. X305 Interest and Other Charges The

rate of interest, including commissions,
premiums, fees and other charges, on any
loan, or forbearance of any money, goods
or credits regardless of maturity and
whether secured or unsecured shall not be
subject to any regulatory ceiling.
X305.2 Escalation clause; when

allowable. Parties to an agreement pertaining
to a loan or forbearance of money, goods or
credits may stipulate that the rate of interest
agreed upon may be increased in the event
that the applicable maximum rate of interest
is increased by the Monetary Board:
Provided, That such stipulation shall be valid
only if there is also a stipulation in the
agreement that the rate of interest agreed
upon shall be reduced in the event that the
Part III - Page 12a
X305.2 - X305.4
05.12.31
applicable maximum rate of interest is

reduced by law or by the Monetary Board:
Provided, further, That the adjustment in the
rate of interest agreed upon shall take effect
on or after the effectivity of the increase or
decrease in the maximum rate of interest.
X305.3 Floating rates of interest. The
rate of interest on a floating rate loan during
each interest period shall be stated on the
basis of Manila Reference Rates (MRRs),
T-Bill Rates or other market based
reference rates plus a margin as may be
agreed upon by the parties.
The MRRs for various interest periods
shall be determined and announced by the
BSP every week and shall be based on the
weighted average of the interest rates paid
during the immediately preceding week
by the ten (10) KBs with the highest
combined levels of outstanding deposit
substitutes and time deposits, on promissory
notes issued and time deposits received
by such banks, of P100,000 and over per
transaction account, with maturities
corresponding to the interest periods for
which such MRRs are being determined.
Such rates and the composition of the
sample KBs shall be reviewed and
determined at the beginning of every
calendar semester on the basis of the banks
combined levels of outstanding deposit
substitutes and time deposits as of 31 May or
30 November, as the case may be.
The rate of interest on floating rate loans

existing and outstanding as of 23 December
1995 shall continue to be determined on the
basis of the MRRs obtained in accordance
with the provisions of the rules existing as of
01 January 1989: Provided, however, That
the parties to such existing floating rate
loan agreements are not precluded from
amending or modifying their loan
agreements by adopting a floating rate of
interest determined on the basis of the TBR
or other market based reference rates.
Where the loan agreement provides
for a floating interest rate, the interest
period, which shall be such period of time
for which the rate of interest is fixed, shall
be such period as may be agreed upon by
the parties.
For the purpose of computing the MRRs,
banks shall accomplish the report forms, RS
Form 2D and Form 2E (BSP 5-17-34A).
X305.4 Accrual of interest earned
on loans. Banks are allowed to accrue
interest earned on loans, subject to the
following guidelines and/or procedures.
a. No accrual of interest income is
allowed if a loan has become
non-performing as defined under Sec. X309.
Likewise, interest income shall not be
accrued for unmatured loans/receivables
with indications that collectibility thereof
has become doubtful. These indications
shall include declaration of bankruptcy,
(Next page is Part III - Page 13)
Part III - Page 12b
X305.4 - X306.1
05.12.31
insolvency, cessation of operations, or such

other conditions of financial difficulties or
inability to meet financial obligations as they
mature. Separate appropriate records shall
be maintained for these non-accruing
unmatured loans.
Interest income on past due loans
arising from discount amortization (and not
from the contractual interest of the accounts)
shall be accrued as provided in PAS 39.
b. Interest earned on extended or
renewed loans may be accrued: Provided,
That there is no previously accrued but
uncollected interest thereon.
Interest income on restructured loans
(principal plus capitalized interest thereon)
may be accrued: Provided, That these are:
(1) In current status; and
(2) Fully secured by real estate with
loan value of up to sixty percent (60%) of
the appraised value of the real estate security
and the insured improvements thereon, and
such other first class collaterals as may be
deemed appropriate by the Monetary Board.
c. Interest on non-performing loan
accounts shall be taken up as income only
when actual payments thereon are received.
d. Accrued interest earned but not yet
collected/received shall not be considered
as profits and/or earnings eligible for
dividend declaration and/or profit sharing.
e. A contra account to be designated
Allowance for Uncollected Interest on
Loans shall be set up in accordance with
Appendix 18 if accrued interest receivable
on loans and loan installments is still
uncollected after three (3) months from the
date such loans and loan installments have
become non-performing.
f. The amount representing Allowance
for Uncollected Interest on Loans may be
chargeable against the excess of outstanding
valuation reserves for loans and other risk
assets as appearing in the banks books, over
those recommended by the appropriate SED
of the BSP. The balance thereof, if any, shall
be chargeable against operations.
g. For all purposes, the Allowance for

Uncollected Interest on Loans shall be
considered a valuation reserve/allowance
against the Accrued Interest Receivable
account.
Sec. X306 Past Due Accounts. Past due
accounts of a bank shall, as a general rule,
refer to all accounts in its loan portfolio, all
receivable components of trading account
securities and other receivables, as defined
in the Manual of Accounts for Banks, which
are not paid at maturity.
X306.1 Accounts considered past
due. The following shall be considered as
past due:
a. Loans or receivables payable on
demand - If not paid on the date indicated
on the demand letter, or within three (3)
months from date of grant, whichever
comes earlier;
b. Bills discounted and time loans,
whether or not representing availments
against a credit line - If not paid on the
respective maturity dates of the promissory
notes;
c. Customers' liability on drafts under
letters of credit/trust receipts:
(1) Sight Bills - If dishonored upon
presentment for payment or not paid within
thirty (30) days from date of original entry,
whichever comes earlier;
(2) Usance Bills - If dishonored upon
presentment for acceptance or not paid on
due date, whichever comes earlier; and
(3) Trust receipts - If not paid on due date.
d. Bills and other negotiable
instruments purchased - If dishonored
upon presentment for acceptance/
payment or not paid on maturity date,
whichever comes earlier: Provided,
however, That an out-of-town check and
a foreign check shall be considered as past
due if outstanding for thirty (30) days and
forty-five (45) days, respectively, unless
earlier dishonored;
Part III - Page 13
X306.1 - X306.5
05.12.31
e. Loans/receivables payable in
installments - The total outstanding balance
thereof shall be considered past due in
Minimum No.
of Installments
Mode of Payment
In Arrears
Monthly
3
Quarterly
1
Semestral
1
Annual
1
balance of the loan/receivable, the total
outstanding balance of the loan/receivable
shall be considered as past due, regardless
of the number of installments in arrears:
Provided, further, That for modes of
payment other than those listed above (e.g.,
daily, weekly or semi-monthly), the entire
shall be considered as past due when the
total amount of arrearages reaches ten
percent (10%) of the total loan/receivable
balance;
For this purpose, the term "installments"
shall refer to principal and/or interest
amortizations that are due on several dates as
indicated/specified in the loan documents.
f. Credit card receivables - If the
minimum amount due or minimum
payment required is not paid within two (2)
cycle dates, the total amount due stated in
the monthly billing statement: Provided,
however, That the total outstanding balance
which includes amortization/s of any fixed
monthly installment plan or deferred
payment scheme shall be considered and
reported past due when the number of
monthly installments in arrears is three (3)
or more: Provided, further, That the bank
shall have the right to demand the
obligation in full in case of default in any
installment thereon if the contract between
the bank and the cardholder contains an
acceleration clause; and
Part III - Page 14
g. (Deleted by Circular No. 202

dated 27 May 1999)
h. Microfinance loans - If a payment
has fallen due and remained unpaid. Loan
payments are applied first to any interest
due, then to any installment of principal
that is due but unpaid, beginning with the
earliest such installment. The number of
days of lateness/delinquency is based on
the due date of the earliest loan installment
that has not been fully paid.
For the purpose of determining
delinquency in the payment of obligations
as defined in Subsec. X143.1e, any due
and unpaid loan installment or portion
thereof, from the time the obligor defaults,
shall be considered past due.
X306.2 Demand loans. Banks shall,
in case of non-payment of a demand loan,
make a written demand within three (3)
months following the grant of such loan.
The demand shall indicate a period of
payment which shall not be later than
three (3) months from date of said demand.
X306.3 Renewals/extensions. No
loan shall be renewed or its maturity date
extended unless the corresponding
accrued interest receivable shall have been
paid.
X306.4 Restructured loans
Restructured loans whose terms of
payment have not been complied with and
which have become past due shall be
governed by the provisions of Sec. X322.
X306.5 Write-off of loans as bad
debts
a. Approval by board of directors.
Banks, upon approval by their board of
directors may write-off loans, other credit
accommodations, advances, and other
assets, regardless of amount, against
allowance for probable losses (valuation
reserves) or current operations as soon as
X306.5 - X306.7
07.12.31
they are satisfied that such loans, other

credit accommodations, advances and
other assets are worthless as follows:
(1) In the case of secured loans, banks
may write-off loans, other credit
accommodations and other assets in an
amount corresponding to the booked
valuation reserves: Provided, That the
balance of the secured loans, other credit
accommodations, advances and other
assets shall remain in the books.
(2) In the case of unsecured loans,
other credit accommodations, advances
and other assets, banks shall write-off said
loans, other credit accommodations,
advances and other assets in full amount
outstanding.
However, write-off of loans, other credit
accommodations, advances and other assets
considered transactions with DOSRI shall be
with prior approval of the Monetary Board.
b. Definitions. For purposes of this
Section, the following terms are hereby
defined as follows:
(1) Loans. The term loans shall refer
to all the accounts under the loan portfolio
of a bank as enumerated in the Manual of
Accounts for Banks.
(2) Other credit accommodations. The
term other credit accommodations shall
refer to exposures of banks other than loans
such as sales contract receivables, accounts
receivables, accrued interest receivables,
lease receivables, and rental receivables.
(3) Advances. The term advances shall
refer to any advance by means of an
incidental or temporary overdraft, cash
vale, any advance by means of DAUD
and any advances of unearned salary or
unearned compensation.
(4) Other assets. The term other assets
shall refer to investments, placements,
ROPAs and all other asset accounts that will
not fall under loans and other credit
accommodations.
(5) Bad debts. The term bad debts shall
refer to the definition under Subsec. X136.1.
c. Reporting requirements. Notice of

write-off of loans, other credit
accommodations, advances, and other
assets shall be submitted in the prescribed
form to the appropriate department of SES
concerned within thirty (30) days after every
write-off with (i) a sworn statement signed
by the President of the bank or officer of
equivalent rank that write-off did not include
transactions with DOSRI and (ii) a copy of
board resolution approving the write-off.
The income tax expense deferred
corresponding to the amount of loan, other
credit accommodation, advances and other
asset written-off considered deductible for
income tax purposes shall be recognized
and reversed in banks books.
d. Verification of write-offs. Write-offs
of loans shall be subject to verification
during examination.
X306.6 Writing-off microfinance
loans as bad debts. Microfinance loans,
regardless of amount that have become past
due in accordance with Subsec. X306.1h
may be written-off, in conformity with the
provisions of Subsec. X306.5: Provided,
That the notice of write-off and attachments
required under Item c of Subsec. X306.5
are filed within thirty (30) days after every
write-off of loans.
X306.7 Updating of information
provided to credit information bureaus
Banks which have provided adverse
information, such as the past due or
litigation status of loan accounts, to credit
information bureaus, or any organization
performing similar functions, shall submit
monthly reports to these bureaus or
organizations on the full payment or
settlement of the previously reported
accounts within five (5) banking days from
the end of the month when such full
payment was received. For this purpose, it
shall be the responsibility of the reporting
banks to ensure that their disclosure of any
Part III - Page 15
X306.7 - X307.1
07.12.31
information about their borrowers/clients

is with the consent of borrowers/clients
concerned.
(Circular No. 589 dated 18 December 2007)
Sec. X307 "Truth in Lending Act"

Disclosure Requirement. Banks are
required to strictly adhere to the provisions
of R.A. No. 3765, otherwise known as the
"Truth in Lending Act", and shall make the
true and effective cost of borrowing an
integral part of every loan contract.
The following regulations shall apply to
all banks engaged in the following types of
credit transactions:
a. Any loan, mortgage, deed of trust,
advance and discount;
b. Any conditional sales contract, any
contract to sell, or sale or contract of sale of
property or services, either for present or
future delivery, under which part or all of
the price is payable subsequent to the
making of such sale or contract;
c. Any rental-purchase contract;
d. Any contract or arrangement for the
hire, bailment, or leasing of property;
e. Any option, demand, lien, pledge,
or other claim against, or for delivery of,
property or money;
f. Any purchase, or other acquisition
of, or any credit upon security of any
obligation or claim arising out of any of the
foregoing; and
g. Any transaction or series of
transactions having a similar purpose or
effect.
The following categories of credit
transactions are outside the scope of these
regulations:
(1) Credit transactions which do not
involve the payment of any finance charge
by the debtor; and
(2) Credit transactions in which the
debtor is the one specifying a definite and
fixed set of credit terms such as bank
deposits, insurance contracts, sale of bonds,
etc.
Part III - Page 16

a. Person means any individual,
partnership, corporation, association or
other organized group of persons, or the
legal successor or representative of the
foregoing, and includes the Philippine
Government or any agency thereof or any
other government, or any of its political
subdivisions, or any agency of the
foregoing.
b. Cash price or delivered price, in
case of trade transactions, is the amount of
money which would constitute full payment
upon delivery of property (except money)
or service purchased at the banks place of
business. In the case of financial
transactions, cash price represents the
amount of money received by the debtor
upon consummation of the credit
transaction, net of finance charges collected
at the time the credit is extended (if any).
c. Down Payment represents the
amount paid by the debtor at the time of
the transaction in partial payment for the
property or service purchased.
d. Trade-in represents the value of an
asset agreed upon by the bank and debtor,
given at the time of the transaction in partial
payment for the property or service
purchased.
e. Non-finance charges correspond to
the amounts advanced by the bank for items
normally associated with the ownership of
the property or of the availment of the
service purchased which are not incident
to the extension of credit. For example, in
the case of the purchase of an automobile
on credit, the creditor may advance the
insurance premium as well as the
registration fee for the account of the debtor.
f. Amounts to be financed consist of
the cash price plus non-finance charges less
the amount of the down payment and value
of the trade-in.
g. Finance charge represents the amount
to be paid by the debtor incident to the
extension of credit such as interest or
X307.1
05.12.31
discounts, collection fees, credit

investigation fees, attorneys fees and other
service charges. The total finance charge
represents the difference between (a) the
aggregate consideration (downpayment
plus installments) on the part of the debtor
and (b) the sum of the cash price and nonfinance charges.
h. Simple annual rate is the uniform
percentage which represents the ratio, on an
annual basis, between the finance charges

and the amount to be financed.
In the case of a single payment upon
maturity, the simple annual rate (R) in percent
is determined by the following method:
R=
(finance charge)
(amount to be
financed)
12
(maturity
period in
months)
X 100
Part III - Page 16a
X307.1 - X307.4
05.12.31
In the case of the normal installment

type of credit of at least one (1) year in
duration, where installment payments of
equal amount are made in regular time
periods spaced not more than one (1) year
apart, the R in percent is computed by the
following method:
(no. of payments
(finance charge)
in a year)
R = 2 x ---------------------- x ------------------------- x 100
(amount to be
(total no. of
financed)
payments
plus one)
In case where the credit matures in less

than one (1) year (e.g., installment payments
are required every month for six (6) months)
the same formula will apply except that the
number of payments in a year would refer to
the number of installment periods, as
defined in the credit contract if the credit
matures in one (1) year. For example, the
number of payments a year would be twelve
(12) for this purpose in case where six (6)
monthly installment payments are called for
in the credit transaction.1
Banks shall furnish each person to whom
credit is extended, prior to the
consummation of the transaction, a clear
statement in writing setting forth the
a. The cash price or delivered price of
the property or service to be acquired;
b. The amounts, if any, to be credited
as downpayment and/or trade-in;
c. The difference between the
amounts set forth under Items a and b;
d. The charges, individually itemized,
which are paid or to be paid by such person
in connection with the transaction but which
are not incident to the extension of credit;
e. The total amount to be financed;
f. The finance charges expressed in
terms of pesos and centavos; and
g. The percentage that the finance

charge bears to the total amount to be
financed expressed as a simple annual rate
on the outstanding unpaid balance of the
obligation.
The contract covering the credit
transaction or any other document to be
acknowledged and signed by the debtor,
shall indicate the above seven (7) items of
information. In addition, the contract or
document shall specify additional charges,
if any, which will be collected in case certain
stipulations in the contract are not met by
the debtor.
In case any of the seven (7) items of
information mentioned is not disclosed in
the contract covering the credit transaction,
all of the seven (7) items, to the extent
applicable, shall be disclosed in another
document in a form (Appendix 19)
prescribed by the Monetary Board, to be
signed by the debtor and appended to the
main contract. A copy of the disclosure
statement shall be furnished the borrower.
X307.3 Inspection of contracts
covering credit transactions. Banks shall
keep in their offices or places of business
copies of contracts which involve the
extension of credit by the bank and the
payment of finance charges therefor. Such
copies shall be available for inspection or
examination by the appropriate SED.
X307.4 Posters. Banks shall post in
conspicuous places in their principal place
of business and branches, if any, the
following:
a. An abstract of the provisions of R.A.
No. 3765 in the form prescribed by the
Monetary Board (Appendix 20) which shall
be reproduced in a format sixty (60) cm.
wide and seventy-five (75) cm. long; and
b. Information regarding interest and
other charges on loans:
(1) Type of loan;
1
This can be determined by dividing twelve, the number of months in a year, by the number or fraction of months between
installment payments.
Part III - Page 17
X307.4 - X309.1
05.12.31
(2) Simple annual rate of interest;

(3) Manner of interest payment; i.e.
whether collected in advance or otherwise;
and
(4) Other fees and charges imposed by
the bank in connection with the loan.
Sec. X308 Amortization on Loans and
Other Credit Accommodations. The
amortization schedule of bank loans and
other credit accommodations shall be
adapted to the nature of the operations to
be financed.
In case of loans and other credit
accommodations with maturities of more
than five (5) years, provisions must be made
for periodic amortization payments, but
such payments must be made at least
annually: Provided, however, That when
the borrowed funds are to be used for
purposes which do not initially produce
revenues adequate for regular amortization
payments, the bank may permit the initial
amortization payment to be deferred until
such time as said revenues are sufficient for
such purpose, but in no case shall the initial
amortization date be later than five (5) years
from the date on which the loan or other
credit accommodation is granted: Provided,
further, That in the case of agriculture and
fisheries projects with long gestation
periods, the initial amortization payment
may be deferred for a longer period based
on the economic life of the project as
provided under Section 24 of R.A. No. 8435
and implemented under Sec. X349.
Sec. X309 Non-Performing Loans
X309.1 Accounts considered nonperforming; definitions
a. Non-performing loans shall, as a
general rule, refer to loan accounts whose
principal and/or interest is unpaid for thirty
(30) days or more after due date or after
they have become past due in accordance
with existing rules and regulations. This
Part III - Page 18
shall apply to loans payable in lump sum

and loans payable in quarterly, semi-annual
or annual installments, in which case, the
total outstanding balance thereof shall be
considered non-performing.
b. In the case of loans payable in
monthly installments, the total outstanding
balance thereof shall be considered nonperforming when three (3) or more
installments are in arrears.
c. In the case of loans payable in daily,
weekly or semi-monthly installments, the
total outstanding balance thereof shall be
considered non-performing at the same
time that they become past due in
accordance with Sec. X306, i.e., the entire
shall be considered as past due when the
total amount of arrearages reaches ten percent
(10%) of the total loan/receivable balance.
d. Restructured loans shall be
considered non-performing in accordance
with Subsec. X322.1.
e. All items in litigation as defined in
the Manual of Accounts for Banks shall be
Only the following accounts are
qualified to be excluded from the nonperforming classification:
(1) Loans previously classified as Loss
by the BSP fully covered by allowance for
probable losses; and
(2) Outstanding credit card receivables
classified as Loss in the latest BSP
examination plus credit card receivables
classified as Loss by the bank but not to
exceed the total amount classified as Loss
in the latest BSP examination: Provided,
That information on the outstanding credit
card receivables classified as Loss as of
the reporting month shall be reported in a
separate item in the Additional Information
of the CSOC. Only banks with no
unbooked valuation reserves and capital
adjustments, even if approved for booking
on a staggered basis, are qualified to
exclude loans classified as Loss by the
X309.1 - X311.2
05.12.31
BSP from the non-performing classification:

Provided, That interest on said loans shall
not be accrued and that such loans shall
also be deducted from total loan portfolio
for purposes of computation.
X309.2 Reporting requirement
Banks shall report the following data, at the
end of each month, as additional
information (under Item 7) of the monthly
CSOC:
7. Total Non-Performing Loans
a. Non-performing regular loans
b. Non-Performing
Restructured Loans
xxx
7a. Loans classified as Loss in

the latest examination by the BSP
which are fully covered by
Allowance for Probable Losses,
net of write-offs and recoveries
xxx
7b. Outstanding credit card

receivables classified as Loss in
the latest BSP examination, net
of write-offs, recoveries and
collections
xxx
7c. Credit card receivables

classified as Loss by the bank
as of this month
xxx
xxx
Banks which are not qualified under

Subsec. X309.1 to exclude loans classified
as Loss by the BSP from the nonperforming classification may opt not to fill
up Item 7a of the Additional Information
of the monthly CSOC.
B. SECURED LOANS
Sec. X311 Loans Secured by Real Estate
Mortgages. Loans against real estate
security shall not exceed seventy percent
(70%) of the appraised value of the
respective real estate security plus seventy
percent (70%) of the appraised value of
insured improvements, and such loans shall

not be made unless title to the real estate is
in the mortgagor.
In the case of UBs/KBs, the loan values
of real estate given as security for any loan
granted shall be reduced from seventy
percent (70%) to not more than sixty
percent (60%) of the appraised value of the
real estate security and the insured
improvements, except the following which
shall be allowed a maximum value of seventy
percent (70%) of the appraised value:
a. Any loan not exceeding P3.5 million
to finance the acquisition or improvement
of residential units; and
b. Housing loans extended or
guaranteed under the governments
National Shelter Program (NSP) such as the
Expanded Housing Loans Program (EHLP)
of the Home Development Mutual Fund
(HDMF or Pag-IBIG Fund) and the mortgage
and guaranty and credit insurance program
of the Home Insurance and Guaranty
Corporation (HIGC).
X311.1 Loans secured by junior
mortgage on real estate. Banks may also
grant loans on the security of junior
mortgages on real estate: Provided, That
for such loans to be considered as
adequately secured under Sections 37 and
38 of R.A. No. 8791, the sum total of the
loans to be granted and the outstanding
balance of the loan granted on the senior
mortgage shall not, at any time, exceed the
loan value of subject real estate security
based on the appraisal of the real estate by
the junior mortgagee.
A certified latest statement of account
showing the outstanding balance of the loan
including interest and arrearages, from the
senior mortgagee shall be presented to the bank.
In case several loans are granted on the
security of the same property, the total amount
of the loans shall not, at any time, exceed the
total loan value of the said property.
X311.2 (Reserved)
Part III - Page 19
1311.2 - 2311.4
05.12.31
1311.2 (Reserved)
2311.2 (Reserved)
3311.2 Eligible
real
estate
collaterals on rural/cooperative bank
loans. Loans may be granted by RBs/Coop
Banks on the security of lands without
Torrens Title where the owner of private
property can show five (5) years or more of
peaceful, continuous and uninterrupted
possession in the concept of an owner; or
of portions of friar land estates or other lands
administered by the Bureau of Lands that
are covered by sales contracts and the
purchasers have paid at least five (5) years
installment thereon, without the necessity
of prior approval and consent by the
Director of Lands, or of portions of other
estates under the administration of the
Department of Agrarian Reform (DAR) or
other governmental agency which are
likewise covered by sales contracts and the
purchasers have paid at least five (5) years
installments thereon, without the necessity
of prior approval and consent of the DAR or
corresponding governmental agency; or of
homesteads or free patent lands pending the
issuance of titles but already approved, the
provisions of any law or regulations to the
contrary notwithstanding: Provided, That
when the corresponding titles are issued, the
same shall be delivered to the Register of
Deeds of the province where such lands are
situated for the annotation of the
encumbrance: Provided, further, That in
the case of lands pending homestead or free
patent titles, copies or notices for the
presentation of the final proof shall also be
furnished the creditor RB/Coop Bank and,
if the borrower applicants fail to present the
final proof within thirty (30) days from date
of notice, the creditor RB/Coop Bank may
do so for them at their expense: Provided,
furthermore, That the applicant for
homestead or free patent has already made
improvements on the land and the loan
applied for is to be used for further
Part III - Page 20
development of the same or for other

productive economic activities: Provided,
finally, That the appraisal and verification
of the status of a land is a full responsibility
of the RB/Coop Bank and any loan granted
on any land which shall be found later to
be within the forest zones shall be for the
sole account of the RB/Coop Bank.
X311.3 Insurance on real estate
improvements. The required insurance on
improvements used as collateral for loan
should be such as shall be sufficient to
secure seventy percent (70%) of the
appraised value of such improvements or if
inadequately insured, the loan value shall
correspond to the extent of insurance taken
on such improvements.
X311.4 (Reserved)
1311.4 (Reserved)
2311.4 Foreclosure by thrift banks
The foreclosure of mortgages covering loans
granted by TBs and executions of judgment
thereon involving real properties levied
upon by a sheriff shall be exempt from the
publications in newspapers now required
by law where the total amount of loan,
excluding interests due and unpaid, does
not exceed P100,000 or such amount as the
Monetary Board may prescribe as may be
warranted by prevailing economic
conditions and by the nature of service of
customers served by each category of the
TB. It shall be sufficient publication in such
cases if the notices of foreclosure and
execution of judgment are posted in the
conspicuous area of the TBs premises,
municipal building, municipal public
market, the barangay hall, and the barangay
public market, if there be any, where the
land mortgaged is situated within a period
of sixty (60) days immediately preceding the
public auction of execution of judgment.
Proof of publication as required herein
shall be accomplished by an affidavit of the
2311.4 - X312
05.12.31
sheriff or officer conducting the foreclosure

sale or execution of judgment and shall be
attached with the records of the case.
A TB shall be allowed to foreclose lands
mortgaged to it: Provided, That said lands
shall be covered under R.A. No. 6657.
3311.4 Foreclosure by rural/
cooperative banks. The foreclosure of
mortgages covering loans granted by RBs/
Coop Banks and executions of judgment
thereon involving real properties levied
upon by a sheriff shall be exempt from the
publications in newspapers now required
by law where the total amount of loan,
excluding interests due and unpaid, does
not exceed P100,000 or such amount as the
Monetary Board may prescribe as may be
warranted by prevailing economic
conditions. It shall be sufficient publication
in such cases if the notices of foreclosure
and execution of judgment are posted in
the conspicuous area of the municipal
building, the municipal public market, the
barangay hall, and the barangay public
market, if any, where the land mortgaged
is situated during the period of sixty (60)
days immediately preceding the public
auction of execution of judgment. Proof of
publication as required herein shall be
accomplished by an affidavit of the sheriff
or officer conducting the foreclosure sale
or execution of judgment and shall be
attached with the records of the case:
Provided, That when a homestead or free
patent is foreclosed, thehomesteader or free
patent holder, as well as his heirs shall have
the right toredeem the same within one (1)
year from the date of foreclosure in the case
of land not covered by a Torrens Title or
one (1) year from the date of the registration
of the foreclosure in the case of land covered
by a Torrens Title.
An RB/Coop Bank shall be allowed to
foreclose lands mortgaged to it: Provided,
That said lands shall be covered under R.A.
No. 6657.
X311.5 Redemption of foreclosed

real estate mortgage. In the event of
foreclosure, whether judicially or extrajudicially, of any mortgage on real estate,
the mortgagor or debtor shall have the right
within one (1) year after the sale of the real
estate, to redeem the property by paying
the amount due under the mortgage deed,
with interest thereon at the rate specified
in the mortgage, and all costs and expenses
incurred by the bank or institution from the
sale and custody of said property less the
income derived therefrom. However, the
purchaser at the auction sale concerned
shall have the right to enter upon and take
possession of such property immediately
after the date of the confirmation of the
auction sale and administer the same in
accordance with the law.
Juridical persons whose property is
being sold pursuant to an extra-judicial
foreclosure, shall have the right to redeem
the property in accordance with this
provision until, but not after, the
registration of the certificate of foreclosure
sale with the applicable Register of Deeds
which in no case shall be more than three
(3) months after foreclosure, whichever is
earlier.
Sec. X312 Loans and Other Credit
Accommodations Secured By Chattels and
Intangible Properties. Loans and other
credit accommodations on the security of
chattels and intangible properties, such as,
but not limited to, patents, trademarks,
trade names, and copyrights shall not
exceed seventy-five percent (75%) of the
appraised value of the security, and such
loans and other credit accommodations
may be made to the title-holder of the
unencumbered chattels and intangible
properties or his assignees: Provided, That
in the case of intangible properties,
appraisal thereof shall be conducted by an
independent appraiser acceptable to the
BSP.
Part III - Page 21
X313 - X315
05.12.31
Sec. X313 Loans and Other Credit

Accommodations Secured By Personal
Properties. Loans and other credit
accommodations may be secured by
unencumbered personal property which
may consist of:
a. Bonds and securities issued by the
Government. Such bonds and securities
may be given loan values equivalent to their
face value or cash value, as the case may be;
b. Readily marketable bonds and other
high-grade debt securities and blue chip
stocks, except those issued by the lending
entity or by its parent company, which owns
more than fifty percent (50%) of its
outstanding shares of stocks: Provided, That
(1) the issuer corporation must be a listed
corporation with a net worth of at least P1.0
billion and with annual net earnings during
the immediately preceding five (5) years;
and (2) the loan value shall be equivalent
to fifty percent (50%) of their market value.
c. Expected harvest from the project to
be financed or growing crops, up to forty
percent (40%) of the calculated market value
of the crop for which the loan or other credit
accommodation is sought, based on
previous production records or, in the
absence thereof, on production in the
locality of similar plantations;
d. Quedans or warehouse receipts
issued by bonded warehouses covering
stock deposited in said warehouses up to
eighty percent (80%) of the calculated
market value of the crop for which the loan
or other credit accommodation is sought; and
e. Any other personal property, up to
fifty percent (50%) of the fair market value.
If the property is newly purchased and the
purchase price thereof appears in a bill of
sale, then the above percentage shall be
based on the price of the said bill of sale.
Sec. X314 Increased Loan Values and
Terms of Loans for Home-Building. Loans
for home-building and subdivision
development for low and middle-income
Part III - Page 22
families against real estate security and

housing loans defined as loans granted for
the purpose of constructing, improving or
acquiring a residential property which is
rented or is occupied or intended to be
occupied by the borrower may be granted
up to eighty percent (80%) of the appraised
value of the real estate security: Provided,
That:
a. Such loans shall not be made unless
the title to the real estate security is in the
name of the borrower or mortgagor; and
b. In case of subdivision/housing
project, the same or its plan has been
approved by the proper authorities;
Provided, further, That the loans may
be increased to ninety percent (90%) of the
appraised value of the real estate security if
such loans are fully guaranteed by the
appropriate government agency, in addition
to the foregoing conditions.
Sec. X315 Loans Secured by Certificates
of Time Deposit. The following rules shall
govern the grant of loans secured by holdout on and/or assignment of CTDs issued
by the lending bank, as well as its branches
or subsidiaries abroad:
a. The original copy of the CTDs
subject to hold-out or assignment shall be
surrendered to the lending bank;
b. The depository bank, other than the
lending bank, shall be furnished a copy of
the Deed of Assignment or hold-out
agreement on the deposit used as collateral;
c. If the term of the CTDs subject to
hold-out or assignment is shorter than the
term of the loan, there shall be an
agreement in writing that renewal of the
time deposit upon maturity shall be made
at least co-terminus with the term of the
loan;
d. There shall be no pretermination of
the time deposit without the consent of the
lending bank and unless an acceptable
substitute collateral for the loan has been
made;
X315 - X320.1
08.12.31
e. The lending bank shall keep a

complete record of all pertinent loan
documents, such as, but not limited to,
the original copy of the CTDs subject to
assignment or hold-out agreement; deed
of assignment or hold-out agreement;
and written waiver of the depositor
required in Item "f" below, which shall
be made available for inspection and/or
examination by the appropriate
department of the SES; and
f. The loan documents shall include
a waiver on the part of the depositor of his
rights under existing law to the
confidentiality of his deposits.
C. UNSECURED LOANS
Sec. X319 Loans Against Personal
Security. The grant, renewal, restructuring
or extension of unsecured loans shall, in
addition to the requirements of Sec. X304,
be made under the signature of the
principal borrower and at least one (1)
co-maker, except that a co-maker is not
required when the principal borrower has
the financial capacity and a good track
record of paying his obligations.
X319.1 General guidelines

(Deleted by Circular No. 622 dated
16 September 2008)
X319.2 Proof of financial capacity

of borrower
16 September 2008)
X319.3 Signatories
16 September 2008)
X319.4 - X319.6 (Reserved)
Sec. X320 Credit Card Operations;

General Policy. The BSP shall foster the
development of consumer credit through
innovative products such as credit cards
under conditions of fair and sound consumer
credit practices. The BSP likewise encourages
competition and transparency to ensure more
efficient delivery of services and fair dealings
with customers.
Towards this end, the following rules
and regulations shall govern the credit card
operations of banks and subsidiary/affiliate
credit card companies, aligned with global
best practices.
a. Credit card. Means any card, plate,
coupon book or other credit device existing
for the purpose of obtaining money,
property, labor or services on credit.
b. Credit card receivables. Represents
the total outstanding balance of credit
cardholders arising from purchases of goods
and services, cash advances, annual
membership/renewal fees as well as interest,
penalties, insurance fees, processing/service
fees and other charges.
c. Minimum amount due or minimum
payment required. Means the minimum
amount that the credit cardholder needs to
pay on or before the payment due date for
a particular billing period/cycle as defined
under the terms and conditions or
reminders stated in the statement of
account/billing statement which may
include: (1) total outstanding balance
multiplied by the required payment
percentage or a fixed amount whichever is
higher; (2) any amount which is part of any
fixed monthly installment that is charged to
the card; (3) any amount in excess of the credit
line; and (4) all past due amounts, if any.
d. Default or delinquency. Shall
mean non-payment of, or payment of any
amount less than, the Minimum Amount
Due or Minimum Payment Required
Part III - Page 23
X320.1 - X320.2
05.12.31
within two (2) cycle dates, in which case,

the Total Amount Due for the particular
billing period as reflected in the monthly
statement of account may be considered in
default or delinquent.
e. Acceleration clause. Shall mean
any provision in the contract between
the bank and the cardholder that gives
t h e bank the right to demand the
obligation in full in case of default or
non-payment of any amount due or for
whatever valid reason.
f. Subsidiary refers to a corporation or
firm more than fifty percent (50%) of the
outstanding voting stock of which is directly
or indirectly owned, controlled or held with
the power to vote by a bank or other FI.
g. Affiliate refers to an entity linked
directly or indirectly to a bank or other FI
through any one or a combination of any
of the following:
(1) Ownership, control or power to
vote, whether by permanent or temporary
proxy or voting trust, or other similar
contracts, by a bank or other financial
institution of at least ten percent (10%) or
more of the outstanding voting stock of the
entity, or vice-versa;
(2) Interlocking directorship or
officership, except in cases involving
independent directors as defined under
existing regulations;
Part III - Page 24
(3) Common stockholders owning at

least ten percent (10%) of the outstanding
voting stock of each FI and the entity; or
(4) Management contract or any
arrangement granting power to the bank or
other FI to direct or cause the direction of
management and policies of the entity, or
vice-versa.
X320.2 Risk management system
To safeguard their interests, banks and
subsidiary/affiliate credit card companies
are required to establish an appropriate
system for managing risk exposures from
credit card operations which shall be
documented in a complete and concise
manner. The risk management system
shall cover the organizational set-up, records
and reports, accounting, policies and
procedures and internal control.
Written policies, procedures and
internal control guidelines shall be
established on the following aspects of
credit card operations:
a. Requirements for application;
b. Solicitation and application
processing;
c. Determination and approval of
credit limits;
d. Pre-approved cards;
e. Issuance, distribution and activation
of cards;
X320.2 - X320.4
05.12.31
f. Supplementary or extension cards;

g. Cash advances;
h. Billing and payments;
i. Deferred payment program or
special installment plans;
j. Collection of past due accounts;
k. Handling of accounts for write-off;
l. Suspension, cancellation and
withdrawal or termination of card;
m. Renewal of cards, upgrade or
downgrade of credit limit;
n. Lost or stolen cards and their
replacement;
o. Accounts of DOSRI and
employees;
p. Disposition of errors and/or
questions about the billing statement/
statement of account and other customers
complaints; and
q. Dealings with marketing agents/
collection agents.
X320.3 Minimum requirements
Before issuing credit cards, banks and/or
their subsidiary/affiliate credit card
companies must exercise proper diligence
by ascertaining that applicants possess
good credit standing and are financially
capable of fulfilling their credit
commitments. The net take home pay of
applicants who are employed, the net
monthly receipts of those engaged in trade
or business, or the net worth or cash flow
inferred from deposits of those who are
neither employed nor engaged in trade or
business or the credit behavior exhibited
by the applicant from his other existing
credit cards, or other lifestyle indicators
such as, but not limited to, club
memberships, ownership and location of
residence and motor vehicle ownership
shall be determined and used as basis for
setting credit limits. The gross monthly
income may also be used provided
reasonable deductions are estimated for
income taxes, premium contributions, loan
amortizations and other deductions.
All credit card applications, especially

those solicited by third party representatives/
agents, shall undergo a strict credit risk
assessment process and the information
stated thereon validated and verified by
persons other than those handling
marketing.
Banks or their subsidiary/affiliate credit card
companies shall disclose to each person to
whom the credit card privilege is extended
in the agreement, contract or any equivalent
document governing the issuance or use of
the credit card or any amendment thereto
or in such other statement furnished the
cardholder from time to time, prior to the
imposition of the charges and to the extent
applicable, the following information:
a. non-finance charges, individually
itemized, which are paid or to be paid by
the cardholder in connection with the
transaction but which are not incident to the
extension of credit;
b. the percentage that the interest bears
to the total amount to be financed expressed
as a simple monthly or annual rate, as the
case may be, on the outstanding balance of
the obligation;
c. the effective interest rate per annum;
d. for installment loans, the number of
installments, amount and due dates or
periods of payment schedules to repay the
indebtedness;
e. the default, late payment/penalty
fees or similar delinquency-related charges
payable in the event of late payments;
f. the conditions under which interest
may be imposed, including the time period,
within which any credit extended may be
repaid without interest;
g. the method of determining the
balance upon which interest and/or
delinquency charges may be imposed;
h. the method of determining the
amount of interest and/or delinquency
charges, including any minimum or fixed
Part III - Page 25
X320.4 - X320.9
05.12.31
amount imposed as interest and/or

delinquency charge;
i. where one (1) or more periodic rates
may be used to compute interest, each such
rate, the range of balances to which it is
applicable, and the corresponding simple
annual rate;
j. other fees, such as membership/
renewal fees, processing fees, collection
fees, credit investigation fees and attorneys
fees; and
k. for transactions made in foreign
currencies and/or outside the Philippines,
for dual currency accounts (peso and dollar
billings), as well as payments made by credit
cardholders in any currency other than the
billing currency: the application of
payments; the manner of conversion from
the transaction currency and payment
currency to Philippine pesos or billing
currency; definition or general description
of verifiable blended exchange/conversion
rates (e.g., MASTERCARD and/or VISA
International rates on the day the item was
processed/posted to the billing statement,
plus mark-up, if any) including conversion
commission; and/or other currency
conversion charges and costs arising from
the purchase by the card company of foreign
currency to settle the customers
transactions shall also be disclosed.
X320.5 Interest accrual on past due
loans. Interest income on past due loans
arising from discount amortization (and not
from the contractual interest of the accounts)
shall be accrued as provided in PAS 39.
X320.6 Finance charges. The
amount of finance charges in connection
with any credit card transaction shall refer
to interest charged to the cardholder.
X320.7 Deferral charges. The bank
and the cardholder may, prior to the
consummation of the transaction, agree in
writing to a deferral of all or part of one (1)
Part III - Page 26
or more unpaid installments and the bank

may collect a deferral charge which shall
not exceed the rate previously disclosed
pursuant to the provisions on disclosure.
X320.8 Late payment/penalty fees
No late payment or penalty fee shall be
collected from cardholders unless the
collection thereof is fully disclosed in the
contract between the issuer and the
cardholder: Provided, That late payment or
penalty fees shall be based on the unpaid
minimum amount due or a prescribed
minimum fixed amount: Provided, further,
That said late payment or penalty fees may
be based on the total outstanding balance
of the credit card obligation, including
amounts payable under installment terms
or deferred payment schemes, if the
contract between the issuer and the
cardholder contains an acceleration
clause and the total outstanding balance
of the credit card is classified and reported
as past due.
X320.9 Confidentiality of
information. Banks and subsidiary/affiliate
credit card companies shall keep strictly
confidential the data on the cardholder or
consumer, except under the following
circumstances:
a. disclosure of information is with the
consent of the cardholder or consumer;
b. release, submission or exchange of
customer information with other financial
institutions, credit information bureaus,
credit card issuers, their subsidiaries and
affiliates;
c. upon orders of court of competent
jurisdiction or any government office or
agency authorized by law, or under such
conditions as may be prescribed by the
Monetary Board;
d. disclosure to collection agencies,
counsels and other agents of the bank or
card company to enforce its rights against
the cardholder;
X320.9 - X320.14
05.12.31
e. disclosure to third party service

providers solely for the purpose of assisting
or rendering services to the bank or card
company in the administration of its credit
card business; and
f. disclosure to third parties such as
insurance companies, solely for the purpose
of insuring the bank from cardholder default
or other credit loss, and the cardholder from
fraud or unauthorized charges.
X320.10 Suspension, termination of
effectivity and reactivation. Banks or their
subsidiary/affiliate credit card companies
shall formulate criteria or parameters for
suspension, revocation and reactivation of
the right to use the card and shall include
in their contract with cardholders a
provision authorizing the issuer to suspend
or terminate its effectivity, if circumstances
warrant.
X320.11 Inspection of records
covering credit card transactions. Banks
or their subsidiary/affiliate credit card
companies shall make available for
inspection or examination by the
appropriate SED of the BSP complete and
accurate files on card applicant/cardholder
to support the consideration for approval
of the application and determination of the
credit limit which shall be in accordance
with the verified debt repayment ability and/
or net worth of the card applicant/
cardholder.
X320.12 Offsets. For purposes of
transparency and adequate disclosure, the
credit card issuer shall inform/notify the
credit cardholder in the agreement, contract
or any equivalent document governing the
issuance or use of the credit card that,
pursuant to the provisions of Articles 1278
to 1290 of the New Civil Code of the
Philippines, as amended, the use of his
credit card will subject his deposit/s with
the bank to offset against any amount/s due
and payable on his credit card which have

not been paid in accordance with the terms
of the agreement/contract.
X320.13 Handling of complaints
Banks or subsidiary/affiliate credit card
companies shall give cardholders at least
twenty (20) calendar days from statement
date to examine charges posted in his/her
statement of account and inform the bank/
subsidiary credit card companies in writing
of any billing error or discrepancy. Within
ten (10) calendar days from receipt of such
written notice, the bank/subsidiary credit
card company shall send a written
acknowledgment to the cardholder unless
the action required is taken within such ten
(10)-day period.
Not later than two (2) billing cycles or
two (2) months which in no case shall
exceed ninety (90) days after receipt of the
notice and prior to taking any action to
collect the contested amount, or any part
thereof, banks/subsidiary credit card
companies shall make appropriate
corrections in their records and/or send a
written explanation or clarification to the
cardholder after conducting an
investigation. Nothing in this Subsection
shall be construed to prohibit any action by
the bank/subsidiary credit card company to
collect any amount which has not been
indicated by the cardholder to contain a
billing error or apply against the credit limit
of the cardholder the amount indicated to
be in error.
X320.14 Unfair collection practices
Banks, subsidiary/affiliate credit card
companies, collection agencies, counsels
and other agents may resort to all reasonable
and legally permissible means to collect
amounts due them under the credit card
agreement: Provided, That in the exercise
of their rights and performance of duties,
they must observe good faith and reasonable
conduct and refrain from engaging in
Part III - Page 27
X320.14 - X322.1
05.12.31
unscrupulous or untoward acts. Without

limiting the general application of the
foregoing, the following conduct is a
violation of this Subsection:
a. the use or threat of violence or other
criminal means to harm the physical person,
reputation, or property of any person;
b. the use of obscenities, insults, or
profane language which amount to a
criminal act or offense under applicable laws;
c. disclosure of the names of credit
cardholders who allegedly refuse to pay
debts, except as allowed under Subsec.
X320.9;
d. threat to take any action that cannot
legally be taken;
e. communicating or threat to
communicate to any person credit
information which is known to be false,
including failure to communicate that a debt
is being disputed;
f. any false representation or
deceptive means to collect or attempt to
collect any debt or to obtain information
concerning a cardholder; and
g. making contact at unreasonable/
inconvenient times or hours which shall be
defined as contact before 6:00 A.M. or after
10:00 P.M., unless the account is past due
for more than sixty (60) days or the
cardholder has given express permission or
said times are the only reasonable or
convenient opportunities for contact.
to any or all of the following sanctions
depending upon their severity:
a. Disqualification of the bank
concerned from the credit facilities of the
BSP except as may be allowed under
Section 84 of R.A. No. 7653;
b. Prohibition of the bank concerned
from the extension of additional credit
accommodation against personal security; and
c. Penalties and sanctions provided
under Sections 36 and 37 of R.A. No. 7653.
Part III - Page 28

D. RESTRUCTURED LOANS
Sec. X322 Restructured Loans; General
Policy. Banks shall have full discretion in
the restructuring of loans in order to
provide flexibility in arranging the
repayment of such loans without impairing
or endangering the lending banks financial
interest, except in special cases approved
by the Monetary Board such as loans
funded by foreign currency obligations.
However, the restructuring of loans granted
to DOSRI should be upon terms not less
favorable to the bank than those offered to
others. While agreements on loan
restructuring should be considered as
management tools to maintain or improve
the soundness of the banks lending
operations, these should be drawn mainly
to assist borrowers towards the settlement
of their obligations, taking into account
their capacity to pay.
X322.1 Definition; when to consider
performing/non-performing. Restructured
loans are loans the principal terms and
conditions of which have been modified
in accordance with a restructuring
agreement setting forth a new plan of
payment or a schedule of payment on a
periodic basis. The modification may
include, but is not limited to, change in
maturity, interest rate, collateral or increase
in the face amount of the debt resulting
from the capitalization of accrued interest/
accumulated charges. Items in litigation
and loans subject of judicially approved
compromise, as well as those covered by
petitions for suspension or for new plans
of payment approved by the court or the
SEC, shall not be classified as restructured
loans.
A loan which is restructured shall be
considered non-performing except when as
of restructuring date -
X322.1 - X322.2
05.12.31
(1) with updated principal and interest

payments; and
(2) fully secured by real estate with loan
value of up to sixty percent (60%) of
the appraised value of the real estate
security and the insured improvements
thereon, and such other first class collaterals
as may be deemed appropriate by the
Monetary Board: Provided, That a
restructured loan, with or without
capitalized interest, must be yielding a rate
of interest equal to or greater than the banks
average cost of funds at the date of
restructuring, otherwise, it shall be
The restoration to a performing loan
shall only be effective after a satisfactory
track record of payments of the required
amortizations of principal and/or interest
has been established.
For this purpose, a satisfactory track
record of payments of principal and/or
interest shall mean three (3) consecutive
payments of the required amortizations of
principal and/or interest have been made.
However, in the case of a restructured loan
with capitalized interest but not fully
secured by real estate with loan value of
up to sixty percent (60%) of the appraised
value of the real estate security and the
insured improvements thereon or other first
class collaterals, six (6) consecutive payments
of the required amortizations of principal and/
or interest must have been made.
A restructured loan which has been
restored to a performing loan status shall be
immediately considered non-performing in
case of default of any principal or interest
payment.
X322.2 Procedural requirements
a. A loan may be restructured, subject
to the approval of the banks board of
directors in a resolution which shall
embody, among other things:
(1) the basis of or justification for the
approval;
(2) determination of the borrowers

capacity to pay, such as viability of the
business; and
(3) the nature and extent of protection
of the banks exposure.
The authority to approve the
restructuring of loans may be delegated by
the banks board of directors to a committee
or officer(s): Provided, That there are boardprescribed guidelines specifically on
restructuring of loans: Provided, further, That
said guidelines shall be submitted to the
appropriate SED of the BSP within thirty (30)
days following the date of approval thereof.
However, loans previously approved by the
executive committee as well as those
granted to DOSRI shall be subject to
approval by the board as provided under
existing rules and regulations. Loans
restructured other than those approved by
the board shall be reported to it for
confirmation.
b. A second restructuring of a loan
shall be allowed only if there are reasonable
justifications: Provided, That it shall be
considered a non-performing loan and
classified, at least, Substandard. The
restoration to a performing loan status and/
or upgrading of loan classification, e.g., from
Substandard to Loans Especially
Mentioned, if circumstances warrant an
upgrading in accordance with the criteria
under Appendix 18, shall only be allowed
after a satisfactory track record of at least six
(6) consecutive payments of the required
amortization of principal and/or interest has
been established.
c. In the restructuring process, the bank
shall encourage the borrower to improve the
quality of the loan either by strengthening
financial capacity or providing additional
collateral.
The real estate security and/or other first
class collaterals offered shall be appraised
at the time of restructuring to ensure that
current market values are being used. Real
estate security shall be appraised by an
Part III - Page 29
X322.2 - X322.4
05.12.31
independent appraisal company acceptable

to the BSP and shall be reappraised every
year thereafter.
(1) For UBs/KBs a loan benchmark is
set at P5.0 million, such that loans beyond
this amount will require an independent
appraisal company: Provided, That the
appraisal company contracted to do the
appraisal is not a subsidiary or an affiliate
of the UB/KB.
(2) For TBs a loan benchmark is set
at P1.0 million such that loans beyond this
amount will require an independent appraisal
company: Provided, That the appraisal
company contracted to do the appraisal is not
a subsidiary or an affiliate of the TB.
A TB may be allowed to use a UB/KB
or another TB acceptable to the BSP to do
the appraisal for it: Provided, That the TB
requesting the appraisal is not a subsidiary
or affiliate of the UB/KB/other TB contracted
to do the appraisal.
(3) For RBs/Coop Banks the benchmark is set at P500 thousand such that loans
beyond this amount will require an
independent appraisal company: Provided,
That the appraisal company contracted to
do the appraisal is not a subsidiary or an
affiliate of the RB/Coop Bank.
An RB/Coop Bank may be allowed to
use a UB/KB or a TB acceptable to the BSP
to do the appraisal for it: Provided, That
the RB requesting the appraisal is not a
subsidiary or affiliate of the UB/KB/TB
contracted to do the appraisal.
The term first class collaterals refers
to assets and securities which have relatively
stable and clearly definable value and/or
greater liquidity and are free from lien/
encumbrance, such as:
(a) Real estate;
(b) Evidences of indebtedness of the
Republic of the Philippines and of the BSP,
and other evidences of indebtedness or
obligations the servicing and repayment of
which are fully guaranteed by the Republic
of the Philippines;
Part III - Page 30
(c) Hold-out on and/or assignment of

deposits/deposit substitutes maintained in
the lending institutions;
(d) Blue chip shares of stocks, except
those issued by the lending entity or by its
parent company which owns more than fifty
percent (50%) of its outstanding shares of
stocks. For this purpose, the issuer
corporation must be a listed corporation
with a net worth of at least P1.0 billion and
with annual net earnings during the
immediately preceding five (5) years; and
(e) Such other collaterals that the
Monetary Board may declare as first class
collaterals from time to time.
It is understood that the loan value to
be assigned the collateral shall be as
prescribed under existing regulations.
X322.3 R e s t r u c t u r e d
loans
considered past due. Restructured loans
shall be considered past due in case of
default of any principal or interest and shall
be subject to classification in accordance
with Sec. X322.4.
X322.4 Classification. The classification
of a loan prior to restructuring, e.g.,
Loans Especially Mentioned, Substandard or Doubtful shall be retained:
Provided, That a loan that is not classified
but which is non-performing prior to
restructuring shall be classified, at least,
Loans Especially Mentioned: Provided,
further, That restructured loans with
capitalized interest shall be classified, at
least, Substandard and the required
valuation reserves shall be set up
accordingly: Provided, finally, That a more
adverse classification may be given, i.e.,
"Substandard", "Doubtful" or "Loss", if the
circumstances warrant it as provided under
Appendix 18.
The upgrading of loan classification,
e.g., from "Substandard" to "Loans
Especially Mentioned", if circumstances
warrant an upgrading in accordance with
X322.4 - X326.1
07.12.31
the criteria under Appendix 18, shall only

be effective after a satisfactory track record
of payments of the required amortizations
of principal and/or interest has been
established.
For this purpose, a satisfactory track
record of payments of principal and/or
interest shall mean three (3) consecutive
principal and/or interest have been made.
However, in the case of a restructured loan
with capitalized interest but not fully
secured by real estate with loan value of
up to sixty percent (60%) of the appraised
value of the real estate security and the
insured improvements thereon or other first
class collaterals, six (6) consecutive
principal and/or interest must have been
made.
E. LOANS AND OTHER CREDIT
ACCOMMODATIONS TO DIRECTORS,
OFFICERS, STOCKHOLDERS AND
THEIR RELATED INTERESTS
Sec. X326 General Policy. Dealings of a
bank with any of its DOSRI should be in
the regular course of business and upon
terms not less favorable to the bank than
those offered to others.
X326.1 Definitions. For purposes of
these regulations, the following definitions
shall apply:
a. Directors shall refer to bank
directors as defined in Subsec. X141.1.
b. Officers shall refer to bank officers
as defined in Subsec. X142.1.
c. Stockholder shall refer to any
stockholder of record in the books of the
bank, acting personally, or through an
attorney-in-fact; or any other person duly
authorized by him or through a trustee
designated pursuant to a proxy or voting
trust or other similar contracts, whose

stockholdings in the lending bank,
individual and/or collectively with the
stockholdings of: (i) his spouse and/or
relative within the first degree by
consanguinity or affinity or legal adoption;
(ii) a partnership in which the stockholder
and/or the spouse and/or any of the
aforementioned relatives is a general
partner; and (iii) corporation, association or
firm of which the stockholder and/or his
spouse and/or the aforementioned
relatives own more than fifty percent
(50%) of the total subscribed capital
stock of such corporation, association
or firm, amount to one percent (1%) or
more of the total subscribed capital
stock of the bank.
d. Substantial stockholder shall mean
a person, or group of persons whether
natural or juridical, owning such number
of shares that will allow such person or
group to elect at least one (1) member of
the board of directors of a bank or who is
directly or indirectly the registered or
beneficial owner of more than ten percent
(10%) of any class of its equity security.
e. Related interest shall refer to any
of the following:
(1) Spouse or relative within the first
degree of consanguinity or affinity, or
relative by legal adoption, of a director,
officer or stockholder of the bank;
(2) Partnership of which a director,
officer, or stockholder of a bank or his
spouse or relative within the first degree of
consanguinity or affinity, or relative by legal
adoption, is a general partner;
(3) Co-owner with the director, officer,
stockholder or his spouse or relative within
the first degree of consanguinity or affinity,
or relative by legal adoption, of the property
or interest or right mortgaged, pledged or
assigned to secure the loans or other credit
accommodations, except when the
mortgage, pledge or assignment covers
only said co-owners undivided interest;
Part III - Page 31
X326.1
07.12.31
(4) Corporation, association, or firm of

which a director or officer of the bank, or
his spouse is also a director or officer of
such corporation, association or firm,
except (a) where the securities of such
corporation, association or firm are listed
and traded in the big board or commercial
and industrial board of domestic stock
exchanges and less than fifty percent (50%)
of the voting stock thereof is owned by any
one (1) person or by persons related to each
other within the first degree of
consanguinity or affinity; or (b) where the
director, officer or stockholder of the bank
sits as a representative of the bank in the
board of directors of such corporation:
Provided, That the bank representative
shall not have any equity interest in the
borrower corporation except for the
minimum shares required by law, rules and
regulations, or by the by-laws of the
corporation: Provided, further, That the
borrowing corporation is not among those
mentioned in Items e(5), e(6), e(7)
and e(8) of this Section;
(5) Corporation, association or firm of
which any or a group of directors, officers,
stockholders of the lending bank and/or
their spouses or relatives within the first
degree of consanguinity or affinity, or
relative by legal adoption, hold or own at
least twenty percent (20%) of the
subscribed capital of such corporation, or
of the equity of such association or firm;
(6) Corporation, association or firm
wholly or majority-owned or controlled by
any related entity or a group of related
entities mentioned in Items e(2), e(4)
and e(5) of this Section;
which owns or controls directly or
indirectly whether singly or as part of a
group of related interest at least twenty
percent (20%) of the subscribed capital of
a substantial stockholder of the lending
bank or which controls majority interest of
the bank pursuant to Subsec. X303.1; and
Part III - Page 32

which has an existing management contract
or any similar arrangement with the parent
of the lending bank.
f. Subsidiary shall refer to a
controlled or held with power to vote by
its parent corporation.
g. Unencumbered deposits shall refer
to savings, time and demand deposits,
which are not subject to an assignment or
hold-out agreement or any other
encumbrance.
h. Book value of the paid-in capital
contribution shall mean the proportional
amount of the banks total capital accounts
(net of such unbooked valuation reserves
and other capital adjustments as may be
required by the BSP) as the corresponding
paid-in capital contribution of each of the
banks directors, officers, stockholders and
their related interests bear to the total paidin capital of the bank: Provided, That as a
basis for determining the individual ceiling
referred to in Sec. X330, the corresponding
book value of the shares of stock of said
directors, officers, stockholders and their
related interests which are the subject of
pledge, assignment or any other
encumbrance shall be deducted therefrom.
i. Net worth shall mean the total of
the unimpaired paid-in capital including
paid-in surplus, retained earnings and
undivided profit, net of valuation reserves
and other adjustments as may be required
by the BSP.
j. Total loan portfolio shall refer to the
sum of all loan accounts outstanding, gross
of valuation reserves, as reflected in the
banks consolidated statement of condition,
excluding outstanding loans financed by
special/specific funds from the government
FIs.
k. Secured loan, borrowing or other
credit accommodation shall refer to any
X326.1 - X327
07.12.31
loan, or credit accommodation or portion

thereof referred to in Sec. X327 which is
secured by:
(1) Real estate mortgage, chattel
mortgage on tangible assets, and pledge of
jewelry, precious stones and other valuable
articles;
(2) Assignment of intangible assets
such as patents, trademarks, trade names
and copyrights;
(3) Unconditional payment guarantees
such as standby letters of credit and letter
of indemnity issued by banks/multilateral
FIs;
(4) Assignment of, or hold-out on,
deposits or deposit substitutes maintained
in the lending bank;
(5) Cash margin deposits; or
assignment or pledge of government
securities or readily marketable bonds and
other high-grade debt securities and bluechip stocks, except those issued by the
lending entity, or by its parent company
which owns more than fifty percent (50%)
of its outstanding shares of stocks, subject
to the additional provision that the issuer
corporation has a net worth of at least P1.0
billion and with annual net earnings during
the immediately preceding five (5) years;
(6) Customers liability under import
bills outstanding for not more than thirty
(30) days from date of original entry;
(7) Sales contract receivables arising
from sale of real property on credit where
title to the property is retained by the bank;
and
(8) Customers liability-import bills
under trust receipts outstanding for not
more than thirty (30) days from date of
booking: Provided, That the booking under
trust receipts shall have been made not later
than the thirty-first day from the date of
original entry referred to in Item (6)
above.
l. Unsecured loan, borrowing or
other credit accommodation shall refer to
any loan, or other credit accommodation
or portion thereof referred in Sec. X327

which is not secured in accordance with
Item k above.
Sec. X327 Transactions Covered. The

terms loans, other credit accommodations
and guarantees as used herein shall refer
to transactions of the bank which involve
the grant of any loan, advance or other
credit accommodation in any form
whatsoever, whether renewal, extension or
increase, and shall include:
a. Any advance by means of an
incidental or temporary overdraft, cash
item, vale, etc.;
b. Any advance of unearned salary or
other unearned compensation for periods
in excess of thirty (30) days;
c. Any advance by means of DAUDs;
d. Outstanding availments under an
established credit line;
e. Drawings against an existing letter
of credit;
f. The acquisition of any note, draft,
bill of exchange or other evidence of
indebtedness upon which the banks
DOSRIs may be liable as makers, drawers,
acceptors, endorsers, guarantors or sureties;
g. Indirect lending such as loans or
other credit accommodations granted by
another financial intermediary to said
DOSRIs from funds of the bank invested in
the other institutions trust or other
department when there is a clear
relationship between the transactions;
h. The increase of an existing
indebtedness, as well as additional
availments under a credit line or additional
drawings against a letter of credit;
i. The sale of assets, such as shares of
stock, on credit; and
j. Any other transactions as a result of
which the banks DOSRIs become
obligated or may become obligated to the
lending bank, by any means whatsoever to
pay money or its equivalent.
Part III - Page 33
X328 - X328.5
07.12.31
Sec. X328 Transactions Not Covered. The

terms loans, other credit accommodations
and guarantees as used herein shall not refer
to the following:
a. Advances against accrued
compensation, or for the purpose of
providing payment of authorized travel,
legitimate expenses or other transactions for
the account of the bank or for utilization of
maternity and other leave credits;
b. The increase in the amount of
outstanding credit accommodations as a
result of additional charges or advances
made by the bank to protect its interest such
as taxes, insurance, etc.;
c. The discount of bills of exchange
drawn in good faith against actually existing
values, and the discount of commercial or
business paper actually owned by the
person negotiating the same, including, but
not limited to, the acquisition by a domestic
bank of export bills from any of its DOSRI
which are drawn in accordance with the
terms and conditions of the covering letters
of credit: Provided, That the transaction
shall automatically be subject to the ceilings
as herein provided once the DOSRI who is
a party to the transaction becomes directly
liable to the bank;
d. Transactions with a foreign bank
which has stockholdings in the local bank
where the foreign bank acts as guarantor
through the issuance of letters of credit or
assignment of a deposit in a currency
eligible as part of the international reserves
and held in a bank in the Philippines to
secure other credit accommodations
granted to another person or entity:
Provided, That the foreign bank stockholder
shall automatically be subject to the ceilings
as herein provided in the event that its
contingent liability as guarantor becomes a
real liability; and
e. Interbank call loan transactions.
X328.1 Applicability to credit card
operations. The credit card operations of
banks shall not be subject to these
Part III - Page 34
regulations where the credit cardholders are

banks DOSRI: Provided, That (a) the
privilege of becoming a credit cardholder
is open to all qualified persons on the basis
of selective criteria which are applied by
the bank to all applicants thereof; and (b)
the banks DOSRIs reimburse/pay the bank
for the billed amount in full on or before
the payment due date in the billing or
statement of account, as set by the bank for
all other qualified credit card holders on
availments made for the same period on
their credit cards. However, the transaction
shall be subject to applicable DOSRI
regulations if the banks DOSRIs:
a. fail to reimburse/pay the bank
within the period mentioned herein; or
b. on the outset, opt for deferred
payment scheme, and the availment is
booked by the bank.
stockholders and related interests refer to
individual credit card holders.
X328.5 Loans, other credit
to subsidiaries and/or affiliates
a. Statement of policy. Dealings of a
bank with its subsidiaries and/or affiliates
shall be in the regular course of business
and upon terms not less favorable to the
bank than those offered to others.
b. Ceilings. The total outstanding
loans, other credit accommodations and
guarantees to each of the banks subsidiaries
and affiliates shall not exceed ten percent
(10%) of the net worth of the lending bank:
Provided, That the unsecured loans, other
credit accommodations and guarantees to
each of said subsidiaries and affiliates shall
not exceed five percent (5%) of such net
worth: Provided, further, That the total
outstanding loans, other credit
accommodations and guarantees to all
subsidiaries and affiliates shall not exceed
twenty percent (20%) of the net worth of
X328.5
07.12.31
the lending bank: Provided, finally, That

these subsidiaries and affiliates are not
related interest of any of the director,
officer, and/or stockholder of the lending
bank, except where such director, officer
or stockholder sits in the board of directors
or is appointed officer of such corporation
as representative of the bank.
c. Exclusions from the ceilings. Loans,
guarantees secured by assets considered as
non-risk under existing BSP regulations as
well as interbank call loans shall be
excluded in determining compliance with
the ceilings prescribed under Item b
above.
d. Procedural requirements. The
following provisions shall apply if a bank
grants a loan, other credit accommodation
or guarantee to any of its subsidiaries and
affiliates.
(1) Approval of the board, when to
obtain. Except with prior written approval
of the majority of all the members of the
board of directors, no loan, other credit
accommodation and guarantee shall be
granted to a subsidiary or affiliate.
(2) Approval by the board, how
manifested. The approval shall be
manifested in a resolution passed by the
board of directors during a meeting and
made of record.
(3) Determination of majority of all the
members of the board of directors. The
determination of the majority of all the
members of the board of directors shall be
based on the total number of directors of
the bank as provided in its articles of
incorporation and by-laws.
(4) Contents of the resolution. The
resolution of the board of directors shall
contain the following information:
(a) Name of the subsidiary or affiliate;
(b) Nature of the loan or other credit
accommodation or guarantee, purpose,
amount, credit basis for such loan or other
credit accommodation or guarantee,
security and appraisal thereof, maturity,

interest rate, schedule of repayment and
other terms;
(c) Date of resolution;
(d) Names of the directors who
participated in the deliberation of the
meeting; and
(e) Names in print and signatures of the
directors approving the resolution:
Provided, That in instances where a director
who participated in the board meeting and
who approved such resolution failed to sign,
the corporate secretary may issue a
certification to this effect indicating the
reason for the failure of the said director to
sign the resolution.
(5) Transmittal of copy of board
approval; contents thereof. A copy of the
written approval of the board of directors,
as herein required, shall be submitted to the
twenty (20) banking days from the date of
approval. The copy may be a duplicate of
the original, or a reproduction copy
showing clearly the signatures of the
approving directors: Provided, That if a
reproduction copy is to be submitted, it shall
be duly certified by the corporate secretary
that it is a reproduction of the original
written approval.
e. Reportorial requirements. Each
bank shall maintain a record of loans, other
credit accommodations and guarantees
covered by these regulations in a manner
and form that will facilitate verification of
such transactions by BSP examiners.
The appropriate department of the SES
may require banks to furnish such data or
information as may be necessary for
purposes of implementing the provisions of
the foregoing rules.
f. Sanctions. Without prejudice to the
criminal sanctions under Sec. 36 of R.A. No.
7653 (The New Central Bank Act), any
violation of the provisions of the foregoing
rules shall be subject to any or all of the
Part III - Page 34a
X328.5 - X329
07.12.31
(1) Restriction or prohibition on the

bank from declaring dividends for noncompliance with the herein prescribed
ceilings until the outstanding loans, other
have been reduced to within the herein
(2) For the duration of each violation,
imposition of a fine of one tenth (1/10) of
one percent (1%) of the excess over the
ceilings per day but not to exceed P30,000
a day on the following:
(a) The lending bank;
(b) Each of the directors voting for the
approval of the loan, other credit
accommodation or guarantee in excess of
any of the ceilings prescribed above.
g. Transitory provisions. Outstanding
loans, other credit accommodation and
guarantees to subsidiaries/affiliates that will
exceed the ceilings mentioned above shall

not be subject to penalty until 9 April 2007
or until said accommodations become past
due, or are extended, renewed or
restructured, whichever comes later.
Sec. X329 Direct or Indirect Borrowings

Loans, other credit accommodations and
guarantees to DOSRI shall be considered
direct or indirect borrowings in accordance
with the following criteria:
a. Direct borrowing. If the director,
officer or stockholder of the lending bank
is a party to any of the transactions
enumerated in Sec. X327 for himself, or as
the representative or agent of others, or if
he acts as a guarantor, endorser or surety
for loans from the bank, or if the loan or
other credit accommodation to another
Part III - Page 34b
X329 - X331
05.12.31
party is secured by a property interest or

right of the director, officer or stockholder.
b. Indirect Borrowing. If in any of the
transactions in Sec. X327 the borrower,
guarantor, endorser or surety is a related
interest as defined in Item e, Subsec.
X326.1.
Other cases of direct/indirect borrowing
shall be resolved on a case-to-case basis.
It shall be the responsibility of the bank
concerned to ascertain whether the
borrower, guarantor, endorser or surety is
related or connected with the bank or with
any of the directors, officers or stockholders
of the bank in any of the capacities
mentioned in Item e of Subsec. X326.1.
In determining indirect borrowings, as
enumerated above, only those cases involving
living relatives shall be considered.
Sec. X330 Individual Ceilings. The total
outstanding loans, other credit
accommodations and guarantees to each
of the banks DOSRI shall be limited to an
amount equivalent to their respective
unencumbered deposits and book value of
their paid-in capital contribution in the
bank: Provided, however, That unsecured
guarantees to each of the banks DOSRI shall
not exceed thirty percent (30%) of their
respective total loans, other credit
accommodations and guarantees.
X330.1 Exclusions from individual
ceiling. The following loans, other credit
accommodations and guarantees shall be
the individual ceiling.
a. Loans, other credit accommodations
and guarantees secured by assets considered
as non-risk by the Monetary Board;
Assets considered as non-risk shall refer
to the following:
(1) Cash;
(2) Debt securities issued by the BSP or
the Philippine government;
(3) Deposits maintained in the lending

bank and held in the Philippines;
(4) Debt securities issued by the U.S.
government;
(5) Debt securities issued by central
governments, central banks of foreign
countries and multilateral financial
institutions such as International Finance
Corporation, Asian Development Bank and
World Bank, with the highest credit quality
given by any two (2) internationally
accepted rating agencies; and
(6) Such other assets considered as nonrisk by the Monetary Board.
b. Loans, other credit accommodations
and advances to officers in the form of fringe
benefits granted in accordance with existing
regulations; and
c. Loans, other credit accommodations
and guarantees extended by a Coop Bank
to its cooperative shareholders.
Sec. X331 Aggregate Ceiling; Ceiling on
Unsecured Loans, Other Credit
Accommodations and Guarantees. Except
with the prior approval of the Monetary
Board, the total outstanding loans, other
credit accommodations and guarantees to
DOSRI shall not exceed fifteen percent
(15%) of the total loan portfolio of the bank
or 100% of net worth whichever is lower:
Provided, That in no case shall the total
unsecured
loans,
other
credit
accommodations and guarantees to said
DOSRI exceed thirty percent (30%) of the
aggregate ceiling or the outstanding loans,
guarantees, whichever is lower. For the
purpose of determining compliance with
the ceiling on unsecured loans, other credit
accommodations and guarantees, banks
shall be allowed to average their ceiling on
unsecured loans, other credit accommodations
and guarantees every week.
In evaluating requests for extension of
loans in excess of the aggregate ceiling, the
BSP shall consider the credit standing of the
Part III - Page 35
X331 - X334
05.12.31
borrower, viability of the projects financed

by such other credit accommodations in
relation to national objectives, collateral or
security and other pertinent considerations.
Sec. X332 Exclusions from Aggregate
Ceiling. The following loans, other credit
accommodations and guarantees shall be
the aggregate ceiling:
a. Credit accommodations or portions
thereof to the extent secured by assets
considered as non-risk by the Monetary Board;
b. Credit accommodations to a
corporate stockholder which meets all the
(1) The corporation is a non-financial
institution;
(2) Its shares are listed and traded in the
domestic stock exchanges; and
(3) No person or group of persons
related within the first degree of
consanguinity or affinity holds/owns more
than twenty percent (20%) of the subscribed
capital of the corporation.
c. Credit accommodations to
corporations, in cases where a director,
officer or stockholder of the lending bank is
a representative of the government in the
borrowing corporation and does not hold
any proprietary interest in such corporation:
Provided, That other rules on loans to
DOSRI, such as procedural and reportorial
requirements under Sections X334 and
X335 are followed.
d. Exclusions from individual ceiling
mentioned under Items (b) and (c) of
Subsec. X330.1.
Sec. X333 Applicability to Branches and
Subsidiaries of Foreign Banks. The
individual and aggregate ceilings as well as
ceilings
on
unsecured
credit
accommodations prescribed herein shall
also apply to branches and subsidiaries of
foreign banks in the Philippines.
Part III - Page 36
Sec. X334 Procedural Requirements. The

following provisions shall apply if the banks
DOSRI are parties to, or act as representatives
or agents of others in, any of the transactions
enumerated under Sec. X327:
a. Approval of the board, when to
obtain. Except with prior written approval
of the majority of the directors, excluding
the director concerned, no loan, other credit
accommodation and guarantee shall be
granted nor shall any of the transactions
enumerated under Sec. X327 be entered into.
b. Approval by the board, how
manifested. The approval shall be
manifested in a resolution passed by the
board of directors during a meeting and
made of record.
c. Determination of majority of the
directors. The determination of the majority
of the directors, excluding the director
concerned, shall be based on the total
number of directors of the bank as provided
in its articles of incorporation and by-laws.
d. Contents of the resolution. The
resolution of the board of directors shall
contain the following information:
(1) Name of the director or officer
concerned and his involvement as regards
the credit accommodation, such as principal,
endorser, spouse of borrower, etc.;
(2) Nature of the loan or other credit
accommodation, purpose, amount, credit
basis for such loan or other credit
accommodation, security and appraisal
thereof, maturity, interest rate, schedule of
repayment and other terms of the loan or
other credit accommodation;
(3) Date of resolution;
(4) Names of the directors who
participated in the deliberations of the
meeting; and
(5) Names in print and signatures of the
directors approving the resolution:
Provided, That in instances where a director
who participated in the board meeting and
who approved such resolution failed to sign,
the corporate secretary may issue a
X334 - X337
05.12.31
certification to this effect indicating the

reason for the failure of the said director to
sign the resolution.
e. Transmittal of copy of board
approval; contents thereof. A copy of the
written approval of the board of directors,
as herein required, shall be submitted to the
appropriate SED of the BSP within twenty
(20) banking days from the date of approval.
The copy may be a duplicate of the original,
or a reproduction copy showing clearly the
signatures of the approving directors:
Provided, That if a reproduction copy is to
be submitted, it shall contain on its face or
reverse side a signed certification by the
secretary that it is a reproduction of the
original written approval: Provided, further,
That such written approval shall not be
required for loans, other credit
accommodations and advances granted to
officers under a fringe benefit plan approved
by the BSP.
Sec. X335 Reportorial Requirements. Each
bank shall maintain a record of loans, other
covered by these regulations in a manner
and form that will facilitate verification of
such transactions by BSP examiners.
The appropriate SED may require banks
to furnish such data or information as may
be necessary for purposes of implementing
the provisions of the foregoing rules.
Sec. X336 Sanctions. Any violation of the
provisions of the foregoing rules shall be
subject to any or all of the following
sanctions:
a. Restriction or prohibition on the
bank from declaring dividends for noncompliance with the prescribed ceiling on
DOSRI until the outstanding loans and other
credit accommodations have been reduced
to within the herein prescribed ceilings;
b. After due notice to the board of
directors of the bank, the office of any bank
director or officer who violates the
provisions of this Section may be declared

vacant and the director or officer shall be
subject to the penal provisions of the New
Central Bank Act;
c. Application of (1) the borrowing
directors or officers share in the banks
profit sharing program; and (2) the share of
the director voting for the approval of the
loan or other credit accommodation, against
the excess of such loan or other credit
accommodation over any of the herein
prescribed ceilings; and
d. For the duration of each violation,
imposition of a fine of one-tenth of one
percent (1/10 of 1%) of the excess over the
ceilings per day but not to exceed P30,000
a day on the following:
(1) The lending bank;
(2) The director, officer or stockholder
whose borrowing exceeds his individual
ceiling; and
(3) Each of the directors voting for the
approval of the loan or other credit
accommodation in excess of any of the
ceilings prescribed in Secs. X330 and X331.
The penalty for exceeding the individual
ceiling, aggregate ceiling and ceiling on
unsecured loans shall be computed on the
average amount of loans in excess of said
ceilings during the same week.
Sec. X337 Waiver of Secrecy of Deposit
Any director, officer or stockholder who,
together with his related interest, contracts
a loan or any form of financial
accommodation from:
a. his bank; or
b. from a bank
(1) which is a subsidiary of a bank
holding company of which both his bank
and the lending bank are subsidiaries; or
(2) in which a controlling proportion of
the shares is owned by the same interest
that owns a controlling proportion of the
shares of his bank, in excess of five percent
(5%) of the capital and surplus of the bank,
or in the maximum amount permitted by
Part III - Page 37
X337 - X338.1
05.12.31
law, whichever is lower, shall be required

by the lending bank to waive the secrecy of
his deposits of whatever nature in all banks
in the Philippines. Any information
obtained from an examination of his
deposits shall be held strictly confidential
and may be used by the examiners only in
connection with their supervisory and
examination responsibility or by the BSP in
an appropriate legal action it has initiated
involving the deposit account.
Sec. X338 Financial Assistance to Officers
and Employees. Banks may provide
financial assistance to their officers and
employees, as part of their fringe benefits
program, to meet the housing,
transportation, household and personal
needs of their officers and employees.
Financing plans and amendments thereto,
shall be with prior approval of the BSP.
X338.1 Mechanics. The mechanics of
such financing plan shall have the following
minimum features:
a. Participation shall be limited to fulltime and permanent officers and employees
of the bank;
b. Financial assistance shall only be for
the following purposes:
(1) The acquisition of a residential
house and lot, or the construction,
renovation or repair of a residential house
on a lot owned and to be occupied by the
officer or employee;
(2) The acquisition of vehicles,
household equipment and appliances for
the personal use of the officer or employee
or his immediate family; or
(3) To meet expenses for the medical,
maternity, education, emergency and other
personal needs of the officer or employee
or his immediate family;
c. Financial assistance for purposes
mentioned in Items b(1) and b(2) of this
Subsection shall be granted in the form of a
loan, advance or other credit
Part III - Page 38
accommodation, installment sale, lease with

option to purchase or lease-purchase
arrangement where the lessee is obliged to
purchase the real estate or equipment;
d. The amount and maturity of
financial assistance for each purpose shall
be determined by the bank in consonance
with the normal requirements thereof:
Provided, That the maximum amount shall
be stated as percentage or multiple of the
total monthly compensation of the officer
or employee and shall be within the paying
capacity of the borrowing officer or
employee.
Total monthly compensation shall
include the basic salary and all fixed and
regular monthly allowances of the officer
or employee. Payments for sickness benefits
and other special emoluments which are not
fixed or regular in nature, or the
commutation into cash of unused leave
credits shall not be included in the
computation of total monthly compensation;
e. The amortization payment shall
include amounts necessary to cover mortgage
redemption insurance and fire insurance
premiums, taxes, special assessments, and
other related fees and charges;
f. Availment of the financing plan to
construct or acquire a residential house and
lot shall be allowed only once during the
officers or employees tenure with the bank,
except where the right over the real estate
previously acquired or constructed under
the financing plan is absolutely transferred
or assigned to another officer or employee
of the bank or to a third party: Provided,
That the bank must be fully paid or
reimbursed for the outstanding availment
on the financing plan before the officer/
employee is allowed to re-avail himself of
the same financing plan.
An officer or employee (or his spouse)
who already owns a residential house and
lot shall not be qualified to avail himself of
financial assistance for purposes of
acquiring a residential house and/or lot.
X338.1 - X338.3
05.12.31
These prohibitions notwithstanding,

financial assistance for the repair or
renovation of a residential house may be
allowed subject to such limitation as may
be prescribed by the bank pursuant to Item
d of this Subsection;
g. Availment of the financing plan for
the acquisition of a specific type of
equipment or appliance shall be allowed
not oftener than once every three (3) years:
Provided, That re-availment shall be
allowed only after previous obligations in
connection with the acquisition of the same
type of equipment or appliances have been
fully liquidated; and
h. The bank shall adopt measures to
protect itself from losses such as by
incorporating in the plan or contract
provisions requiring co-makers or
co-signor, chattel, or real estate mortgages,
fire insurance, mortgage redemption
insurance, assignment of money value of
leave credits, pension or retirement
benefits.
X338.2
(Reserved)
1338.2 Funding by foreign banks. In

the case of local branches of foreign banks,
financial assistance for their officers and
employees may be funded, through any of
the following means:
a. Through a local affiliate by special
arrangement with the head office abroad
in any of the following forms:
(1) Inward remittance from the head
office of the affiliate;
(2) Assignment to the affiliate of
equivalent amounts of profits otherwise
remittable abroad under existing
regulations; or
(3) Direct loans by the foreign bank to
the affiliate; or
b. Through the local branch itself by:
(1) Segregation or transfer of undivided
profits normally remitted to the head office
abroad equivalent to the loans to officers
and employees which shall be lodged

under Other Liabilities-Head Office
Accounts. This account shall at all times
have a balance equivalent to the
outstanding loans to officers/employees
financed under this scheme; or
(2) Inward remittance; or
c. Through the local branch from local
sources without earmarking an equivalent
amount of undivided profits: Provided, That
the aggregate ceilings on such loans as
provided under existing regulations shall
apply.
Loans under Items b(1) and b(2) of
this Subsection shall be treated in the
branch books as loans granted by its head
office. The documentation and collection
of such loans shall be handled by the
branch for the account of the head office.
Loans financed under Items a and b
shall be excluded from the computation of
the capital to risk assets ratio.
X338.3 Other conditions/limitations
a. The investment by a bank in
equipment and other chattels under its
fringe benefits program for officers and
employees shall be included in
determining the extent of the investment
of the bank in real estate and equipment
for purposes of Section 51 of R.A. No. 8791.
b. The investment by a bank in
equipment and other chattels contemplated
under these guidelines shall not be for the
purpose of profits in the course of business
for the bank.
c. The aggregate outstanding loans
and other credit accommodations granted
under the banks fringe benefits program,
inclusive of those granted to officers in the
nature of lease with option to purchase,
shall not exceed five percent (5%) of the
banks total loan portfolio.
Banks providing financial assistance to
their officers/employees shall submit a
regular report on availments of financial
assistance to officers and employees to the
Part III - Page 39
X338.3 - X340
08.12.31
BSP within fifteen (15) banking days after

end of reference semester.
may further require banks to submit such
data or information as may be necessary
to facilitate verification of such transactions
by BSP examiners.
guarantees, as well as availments of

previously approved loans and committed
credit lines not considered DOSRI accounts
prior to 10 April 2004 but are allowed a
transition period as provided above.
(As amended by Circular No. 532 dated 19 May 2006)
X339.1 - X339.3 (Reserved)

Sec. X339 Transitory Provisions
a. The sanctions contained under
Sec. X336 shall not apply to outstanding
guarantees, as well as availments of
previously approved loans and committed
credit lines not considered as DOSRI
accounts prior to 10 April 2004, for a period
of up to 09 April 2007 or until said loans,
guarantees become past due, or are
extended, renewed or restructured,
whichever comes later.
b. Unsecured outstanding loans, other
credit accommodations and guarantees, as
well as availments of previously approved
loans and committed credit lines not
considered as DOSRI accounts prior to 10
April 2004, shall not be deducted from
capital accounts for a period of up to 9 April
2007 or until such time that said loans, other
become past due, or are extended,
renewed or restructured, whichever
comes later.
c. Banks shall, however, disclose the
following information in their financial
statements, annual report and the reports
being submitted to BSP:
(1) DOSRI;
(i) Loans, other credit accommodations
and guarantees classified as DOSRI
accounts under regulations existing prior
to 10 April 2004; and
(ii) New DOSRI loans, other credit
starting 10 April 2004.
(2) Non-DOSRI prior to 10 April 2004
Part III - Page 40

Financing plans and amendments thereto
shall be submitted to BSP within thirty (30)
calendar days from approval thereof by the
banks board of directors. The appropriate
department of the SES may require the
banks concerned to submit a regular report
monitoring the various transactions under
the banks financing plans for officers/
employees.
All banks providing financial assistance
to bank officers/employees shall submit a
report on Availments of Financial
Assistance to Officers and Employees to
the BSP within fifteen (15) banking days
after end of reference semester.
Sec. X340 Applicability of DOSRI Rules
and Regulations to Government Borrowings
in Government-Owned or - Controlled
Banks. The provisions of Secs. X326 to
X337 shall also apply to loans, other credit
accommodations, and/or guarantees
granted to the National Government or
Republic of the Philippines, its political
subdivisions and instrumentalities as well
as GOCCs, subject to the following
clarifications:
a. Loans, other credit accommodations,
and/or guarantees to the Republic of the
Philippines and/or its agencies/departments/
bureaus shall be considered: (1) non-risk; and
(2) not subject to any ceiling;
b. Loans, other credit accommodations,
and/or guarantees to: (1) GOCCs; and
(2) corporations where the Republic of the
Philippines, its agencies/departments/
bureaus, and/or GOCCs own at least
X340
08.12.31
twenty percent (20%) of the subscribed

capital stock shall be considered indirect
borrowings of the Republic of the
Philippines and shall form part of the
individual ceiling as well as the aggregate
ceiling: Provided, That the following loans,
other credit accommodations, and/or
guarantees to GOCCs and corporations
where the Republic of the Philippines, its
agencies/departments/bureaus, and/ or
GOCCs own at least twenty percent (20%)
of the subscribed capital stock, shall be
excluded from the thirty percent (30%)
ceiling on unsecured loans under
Secs. X330 and X331:
(1) Loans, other credit accommodations,
and/or guarantees for the purpose of
undertaking priority infrastructure projects
consistent with the Medium-Term
Development Plan/Medium-Term Public
Investment Program of the National
Government, duly certified as such by the
Secretary of Socio-Economic Planning;
and/or guarantees granted to PFIs in the
lending programs of the government
wherein the funds borrowed are intended
for relending to other PFIs or end-user
borrowers; and
and/or guarantees granted for the purpose
of providing (i) wholesale and retail loans
to the agricultural sector and micro, small
and medium enterprises (MSMEs); and/or
(ii) rediscounting and guarantee facilities
for loans granted to the said sector or
enterprises;
c. Loans, other credit accommodations,
and/or guarantees granted to state
universities and colleges (SUCs) shall be
excluded from the thirty percent (30%)
ceiling on unsecured loans under Secs. X330
and X331.
d. In view of the fiscal autonomy
granted under R.A. No. 7653 and the
independence prescribed under the
Constitution, the BSP shall be considered
an independent entity, hence, not a related

interest of the Republic of the Philippines
and/or its agencies/departments/bureaus.
guarantees of the BSP shall be considered:
(1) non-risk; and (2) not subject to any
ceiling;
e. LGUs shall be considered separate
from the Republic of the Philippines, other
government entities, and from one another
due to the full autonomy in the exercise of
their proprietary functions and in the
management of their economic enterprises
granted to them under the Local
Government Code of the Philippines,
subject to certain limitations provided by
law, hence, not a related interest of the
Republic of the Philippines and/or its
agencies/departments/bureaus;
f. Local Water Districts (LWDs),
although GOCCs, shall be considered
separate from the Republic of the
Philippines, other government entities,
and from one another due to their fiscal
independence from the national
government, hence, not a related
interest of the Republic of the Philippines
and/or its agencies/department/bureaus,
for purposes of these regulations;
g. A director who acts as a
government representative in the lending
institution shall not be excluded in the
deliberation as well as in the determination
of majority of the directors in cases of loans,
other credit accommodations, and
guarantees to the Republic of the
Philippines and/or its agencies/
departments/bureaus; and
h. A director of the lending institution
shall be excluded in the deliberation as
well as in the determination of majority of
the directors in cases of loans, other credit
accommodations, and guarantees to the
borrowing government entity other than
the Republic of the Philippines, its
agencies, departments or bureaus where
said director is also a director, officer or
Part III - Page 41
X340 - X341.3
08.12.31
stockholder under existing DOSRI

regulations.
Nos. 635 dated 10 November 2008, 616 dated 30 July 2008, 580
dated 09 September 2007, and 547 dated 21 September 2006)
F. MANDATORY CREDITS
Sec. X341 Agrarian Reform and
Agricultural Credit. Pursuant to P.D. No.
717, the following guidelines shall govern
the grant of agrarian reform credit and
agricultural credit by banks, government
or private.
a. Loanable funds shall refer to total
funds generated after the effectivity of P.D.
No. 717, the computation of which is
described in Subsec. X341.4.
b. Agrarian reform credit shall refer
to production and other types of loans
granted to beneficiaries of agrarian
reform for the following purposes:
acquisition of work animals, farm equipment
and machinery, seeds, fertilizers, poultry,
livestock, feeds and other similar items;
acquisition of lands authorized under
existing laws; construction and/or
acquisition of facilities for production,
processing, storage and marketing; and
efficient and effective merchandising of
agricultural commodities stored and/or
processed by the facilities aforecited in
domestic and foreign commerce.
c. Agricultural credit in general shall
include all loans and/or advances granted
to borrowers, whether beneficiaries of
agrarian reform or not, to finance activities
relating to agriculture, and for processing,
marketing, storage, and distribution of
products resulting from these activities.
d. Agrarian reform beneficiaries shall
include tillers, tenant-farmers, settlers,
agricultural lessees, amortizing owners,
Part III - Page 42
owner-cultivators, farmers cooperatives

and compact farms, as determined by the
DAR.
The term shall likewise include
agricultural enterprises registered under
P.D. No. 1159 as well as projects
undertaken pursuant to the Corporate
Farming Program under General Order
(G.O) No. 47: Provided, That the borrower
submits the following documents to the
lending bank:
(1) A certification from the Board of
Investments to the effect that the borrower
is an agricultural enterprise duly registered
under P.D. No. 1159 ; and
(2) An endorsement of the DAR stating
that land reform beneficiaries shall benefit
from the agricultural enterprises' projects.
X341.2 Who may borrow; purposes
a. All beneficiaries of agrarian reform
credit mentioned under P.D. No. 717 and
its implementing regulations which credit
shall be used for agricultural production or
for other purposes mentioned therein shall
be qualified borrowers under agrarian
reform credit.
b. Qualified borrowers under
agricultural credit in general are
corporations, entities, or private individuals
engaged in agricultural production,
processing, storage, marketing, or
exportation of agricultural products, and
importation/manufacture/distribution of
farm machineries and equipment,
fertilizers, etc. used for agricultural
production.
X341.3 Required allocation for
agrarian reform and agricultural credit
in general. Banks shall set aside an
amount equivalent to at least twenty-five
percent (25%) of their loanable funds for
agricultural credit in general, of which an
amount equivalent to at least ten percent
(10%) of the loanable funds shall be made
available for agrarian reform credit.
X341.3 - X341.4
05.12.31
a. Marketing credits considered as

agrarian reform credits.
(1) Agrarian reform beneficiaries as
defined by P.D. No. 717;
(2) Registered agricultural enterprises
duly endorsed by the nearest office of the
DAR per P.D. No. 1159;
(3) G.O. No. 47 corporations or
agro-service corporations employed by
G.O. No. 47 corporation which are certified
by the DAR as engaged in grains
production through linkage arrangements
with agrarian reform beneficiaries;
(4) Area marketing cooperatives or
Samahang Nayon duly registered with the
Cooperatives Development Authority
(CDA);
(5) Registered agrarian reform
beneficiaries' associations/other farm
groups respectively endorsed as agrarian
reform beneficiaries by the nearest office
of the DAR; CDA; or the Farm Systems
Development Corporation (FSDC),
National Irrigation Administration (NIA); or
(6) NFA-registered warehousemen/
millers/wholesalers whose grains inventory,
subject to a chattel mortgage, trust receipts
or pledged quedan, are duly sworn to under
oath by grains businessmen-borrowers
concurred by the President of the Agrarian
Reform Beneficiaries Association in the area
as having been produced by agrarian reform
beneficiaries; and
(7) The NFA: Provided, That it certifies
that its palay procurements are obtained
through direct/indirect linkage arrangements
with agrarian reform beneficiaries, subject
to such ceilings as may be imposed by the
BSP/Department of Finance (DOF) on the
loans/advances to the NFA by banks:
Lendings to NFA are considered as
lending to the agricultural and agrarian
sector: Provided, That such lendings shall
be given credit only once for purposes of
determining compliance with the required
allocation of fund for agrarian reform and
agricultural credit in general.
b. Development loan incentives.

[Transferred to Subsec. X341.5, Item "c(1)"].
c. Loans for high-value crops projects.
[Transferred to Subsec. X341.5, Item "c(2)"].
X341.4 Computation of loanable
funds. Loanable funds shall be:
a. The net increase from 29 May 1975
to date of the report of the individual
accounts which represent the following:
(1) The total deposits (demand,
savings, time and NOW accounts)
excluding foreign currency deposits under
Circular No. 1389 and deposits of the BTr
representing revenue collections of the BIR
and BOC;
(2) Deposits of banks, net of due from
other banks;
(3) Bills payable (including borrowings
from banks) net of :
(a) Repo agreement by accredited
government securities dealers if relent to
banks;
(b) Interbank call loans with maturities
not exceeding fifteen (15) days;
(c) Proceeds from special on-lending
programs like the APEX;
(d) Proceeds from BSP rediscounting
(except special time deposits); and
(e) Proceeds from special BSP credit
accommodations in the form of emergency
advances, overnight repo agreements and
availment of overdraft facilities.
(4) Total capital accounts.
b. Total collections from the loan
portfolio outstanding as of 31 May 1975 to
date of the report; and
c. The sum of Items "a" and "b" above,
less the net increase of the following:
(1) Bank premises, furniture and
equipment (net book value);
(2) Real and other property owned or
acquired (representing properties acquired
in satisfaction of debts);
(3) Other assets;
(4) Required reserves against:
(a) deposit liabilities;
Part III - Page 43
X341.4 - X341.5
08.12.31
(b) deposit substitutes;

(c) others (excluding reserves for
margin deposits);
(5) Provisions for liquidity (fifteen
percent (15%) of total deposits and demand
liabilities); and
(6) Loans to export-oriented small and
medium-scale industries involving
accounts not exceeding P1.0 million.
X341.5 Allowable alternative
compliance. In the absence of qualified
borrowers, the following shall apply:
a. Agrarian reform credit
(1) Eligibility of government securities;
conditions. The amount set aside for agrarian
reform credit not actually loaned out may
be invested temporarily in government
securities expressly declared eligible for
the purpose by the BSP, subject to the
(a) Such securities shall be held to
maturity without prejudice to the right of
the holder bank to require the issuing
government entity to monetize, encash or
repurchase such securities whenever funds
are needed by the bank for lending to the
beneficiaries of agrarian reform;
(b) Such securities shall not be
hypothecated or encumbered in any way
or earmarked for any other purposes;
(c) Such securities shall be marked
for agrarian reform credit and shall be
segregated from the banks investment
portfolio; and
(d) Only the buying/lending bank may
use, during the holding period, eligible
government securities subject of a resale/
repo agreement between private entities
for purposes of compliance with this
Subsection, subject to the following:
(i) The resale/repurchase should be
for terms not less than thirty (30) days
without pretermination during the first
successive thirty (30) days, which
condition shall be embodied in the
resale/repo agreement; and
Part III - Page 44
(ii) The buying/lending bank, with the

consent of the selling/borrowing entity,
shall register with the BSP its holdings of
government securities under repo/resale
agreement.
(2) Eligible securities/bonds
(a) NDC Agri-Agra ERAP Bonds.
Investment by banks in NDC Agri-Agra
ERAP Bonds as well as the firm
underwriting of said bonds by banks or by
the subsidiary IH of a UB.
(b) LGU Bonds.
(c) Pag-IBIG P4.0 billion Bond issue
(2000 Series).
(d) Five (5)- and Ten (10)-year Special
Purpose Treasury Bonds (SPTBs) to finance
the CARP-related expenditures, provided
the proceeds of the bonds will be
exclusively used for the agrarian reform
sector.
(e) Zero Coupon Bond Issue by the
HGC of up to P7.0 billion 5-year regular
series and up to P3.0 billion 7-year special
series to finance its guaranty servicing of
socialized and low-cost housing projects
only to the extent of the present value of
the bond computed using the original yield
to maturity (as of auction/issue date).
The eligibility of securities under Items
(2)(a), (2)(b), (2)(d) and 2(e) shall be
subject to the conditions in Items a(1)(b)
and a(1)(d); Item (2)(c) to the conditions
in Items a(1)(b) and a(1)(d)(i).
b. Agricultural credit in general - The
amount set aside for agricultural credit in
general not actually loaned out may be
invested in commercial papers issued by
entities engaged in agricultural production,
processing, storage, marketing, or
exportation of agricultural products; and
importation, manufacture, distribution of
farm machineries and equipment,
fertilizers, etc. used for agricultural
production: Provided, That for purposes of
compliance with this Subsection, only the
buying/lending bank may use commercial
papers acquired in a resale/repo
X341.5
08.12.31
agreement during the holding period

thereof subject to the conditions in Item
"a(1)(d)" of this Subsection.
c. Alternative compliance for both
agri-agra credit
(1) Development loans. Pursuant to
Sections 8 and 9 of R.A. No. 7721 (An Act
Liberalizing the Entry and Scope of
Operations of Foreign Banks in the
Philippines and for Other Purposes), loans
extended by banks incorporated under the
laws of the Philippines, whether Philippine
or foreign-owned, to finance educational
institutions, cooperatives, hospitals and
other medical services, socialized or lowcost housing, and to local government
units, without national government
guarantee, shall be included for purposes
of determining compliance with the
provisions of P.D. No. 717, as amended.
This provision shall, however, not apply
to branches of foreign banks.
For this purpose, the following
(a) Educational institutions shall refer
to all educational establishments duly
authorized by or with permit to operate
from the Department of Education, Culture
and Sports (DECS), or created by special
laws or charters.
(b) Cooperatives shall refer to duly
registered associations of persons with a
common bond of interest who have
voluntarily joined together to achieve a
lawful common social or economic end,
making equitable contributions to the capital
required and accepting a fair share of the
risks and benefits of the undertaking in
accordance with universally accepted
cooperative principles, as defined in R.A. No.
6938 (Cooperative Code of the Philippines).
(c) Hospital shall refer to a place
devoted primarily to the maintenance and
operation of facilities for the diagnosis,
treatment and care of individuals suffering
from illness, disease, injury or deformity,
or in need of obstetrical or other medical
and nursing care.
It also refers to an institution, building

or place where there are installed beds, or
cribs, or bassinets for twenty-four (24)-hour
use or longer by patients in the treatment
of diseases, injuries, deformities or
abnormal physical and mental state,
maternity cases, and all institutions such
as those for convalescence, sanitorial or
sanitarial care, infirmaries, nurseries,
dispensaries and such other names by
which they may be designated.
(d) Medical services shall refer to
various services like general treatment,
physical examination, consultation,
medication, dressing, suturing and surgical
operation, all pertaining to or dealing with
the healing art or the science of medicine,
with license to operate from the
Department of Health (DOH).
(e) Socialized housing refers to
housing programs and projects covering
houses and lots or home lots only
undertaken by the Government or the
private sector for the underprivileged and
homeless citizens which shall include sites
and services development, long-term
financing, liberalized terms on interest
payments, and such other benefits in
accordance with the provisions of
R.A. No. 7279 (Urban Development and
Housing Act).
(f) Economic and socialized housing
refers to housing units which are within the
affordability level of the average and
low-income earners which is thirty percent
(30%) of the gross family income as
determined by the NEDA from time to
time. It also refers to the governmentinitiated sites and services development
and construction of economic and
socialized housing projects in depressed
areas.
Socialized housing packages shall refer
to housing loans not exceeding P225,000
and low-cost housing packages shall consist
of Level 1 which shall refer to housing
loans in excess of P225,000 but not more
than P500,000 and Level 2 which shall
Part III - Page 45
X341.5
08.12.31
refer to housing loans in excess of

P500,000 but not more than P2.0 million,
as prescribed under existing guidelines of
the HUDCC for the implementation of
various government housing programs, or
in such other amounts which HUDCC may
prescribe in the future for said housing
loans.
(g) LGU refers to provinces, cities,
municipalities and any other political
subdivision created by law enacted by
Congress and to barangays created by
ordinance passed by the Sanggunian
Panlalawigan or the Sanggunian
Panglunsod that are located within its
territorial jurisdiction, subject to such
limitations and requirements prescribed in
R.A. No. 7160 (Local Government Code
of 1991).
(2) Loans for high-value crops projects.
Pursuant to Section 8 of R.A. No. 7900, a bank
participating in the High-Value Crops
Development Program that shall lend a
minimum of five percent (5%) of its loanable
funds, without alternative compliance
directly to farmers associations or
cooperatives for high-value crops projects
shall be exempted from, or shall be deemed
to have complied with the requirement of
P.D. No. 717.
For purposes of this item, high-value
crops shall refer to crops that can be
optimally and sustainably produced in key
commercial crop production areas
identified by the Department of Agriculture
(DA) and which can generate revenue
higher than that of traditional crops (which
refer to rice, corn, coconut and sugar). Such
high-value crops include, but are not
limited to: coffee and cacao, fruit crops
(citrus, cashew, guyabano, papaya, mango,
pineapple, strawberry, jackfruit, rambutan,
durian, mangosteen, guava, lanzones, and
watermelon), root crops (potato and ubi),
vegetable crops (asparagus, broccoli,
cabbage, celery, carrots, cauliflower,
radish, tomato, bell pepper, patola)
legume, pole sitao (snap beans and garden
Part III - Page 46
pea), spices and condiments (black

pepper, garlic, ginger and onion), and
cutflower and ornamental foliage plants
(chrysanthemum, gladiolus, anthuriums,
orchids and statice).
Farmers associations/organizations
shall refer to farmers cooperatives,
associations or corporations duly registered
with appropriate government agencies and
which are composed primarily of small
agricultural producers, farmers, farm
workers and other agrarian reform
beneficiaries who voluntarily join together
to form business enterprises which they
themselves, own, control and patronize.
A bank participating in the high-value
crop development program shall refer to
the LBP, the DBP and any qualified lending
institution which has been accredited/
selected as provided in the Implementing
Rules and Regulations of R.A. No. 7900
(Joint Administrative Order No. 1, series
of 1996 of the DA dated 23 April l996).
(3) (Transferred to Item "a(2)a" above
by CL dated 22 June 2000).
(4) Ten (10)-Year Agrarian Reform Bond
issued by the Philippine Government thru
the LBP, subject to the conditions
prescribed in Subsec. X341.5(a) above;
(5) Investments by banks in the
authorized capital stock of Quedan and Rural
Credit Guarantee Corporation (Quedancor);
(6) Loans extended by banks to
farmers, fishermen, cooperatives, rural
workers and rural enterprises covered by
the guarantees of Quedancor;
(7) Rediscounting by secondary banks
of originating banks loan receivables having
the guarantee of Quedancor, subject to the
condition that the originating bank may not
use such loans as compliance with P.D. No.
717 and only the secondary (rediscounting)
bank may claim such loans as compliance
with P.D. No. 717;
(8) Loans secured by the NFAs Palay
Negotiable Warehouse Receipts (PNWRs):
Provided, That the PNWRs shall be printed
on security paper by the BSP;
X341.5 - X341.12
08.12.31
(9) All loans granted to Barangay

Micro Business Enterprises (BMBEs) as
provided under Subsec. X365.5;
(10) Housing microfinance loans, as
provided under Subsec. X361.5; and
(11) Business transactions of larger
banks (i.e., securitization, outright
purchases, etc.) involving housing
microfinance loans, as provided under
Subsec. X361.5: Provided, That the volume
of these banks housing microfinance loans
have already achieved a desirable level.
(As amended by M-2008-015 dated 19 March 2008)
X341.6 Syndicated type of agrarian

reform credit/agricultural credit. Banks
may grant a syndicated type of loan for
agrarian reform credit/agricultural credit in
general, either between or among
themselves. The mechanics, including the
recording of such syndicated type of loan
transactions, shall follow existing practices
and regulations applicable both to the lead
bank and other participating bank(s).
Accordingly, the booking of loans shall
only be for the amount of actual
participation of each syndicate bank
concerned. Memorandum entries,
references or notations shall be made for
the other participating bank(s).
X341.7 Interest and other charges
Interest, service fees and other charges
shall be governed by existing rules and
regulations.
X341.8 Unused agri-agra funds to be
utilized for socialized and low-cost housing
As a source of non-budgetary funding to
augment the Comprehensive and
Integrated Shelter and Urban Development
Financing Program under R.A. No. 7835,
all unused agri-agra allocation funds of
banks in the preceding year shall be
invested in socialized and low-cost housing
if the utilized portion of the agri-agra funds
of said banks was solely devoted to
agricultural and agrarian reform credits.
X341.9 Submission of reports. A

quarterly report on the following shall be
of the SES within the period prescribed in
Appendix 6.
a. Utilization of loanable funds set
aside for agrarian reform credit and
agricultural credit in general;
b. Any change in the composition of
government securities and commercial
papers held as temporary investments for
agrarian reform credit and agricultural
credit in general, respectively; and
c. A certification under oath by the
duly designated officer of the bank of the
absence of qualified borrowers for agrarian
reform credit or agricultural credit in
general shall be submitted to the
appropriate department of the SES together
with the report as required in this
Subsection.
X341.10 - X341.11 (Reserved)
X341.12 Consolidated compliance
The compliance with agri-agra mandatory
allocation of funds under P. D. No. 717 shall
be allowed on a groupwide basis (based
on consolidated financial statements of
investor-FI or parent bank and its
subsidiaries/affiliates): Provided, That the
subsidiary banks are at least seventy five
percent (75%) owned/controlled by the
parent bank, subject to the following
conditions:
a. The consolidated report shall be
submitted by the bank in the prescribed
form and shall be supported by the
individual reports of the bank and its
subsidiaries duly signed by each banks
authorized signatory. The subsidiaries
shall continue with their respective
submission of the subject report to the
the prescribed period;
b. Either the parent bank or the
subsidiary bank can exercise the right to
avail itself of/use the excess of its
Part III - Page 47
X341.12 - X342
08.12.31
subsidiary bank/parent bank for its own

compliance; and
c. In the event of a deficiency in
compliance of any parent or subsidiary
or all of these banks, the members of the
board of directors and its president and
the other officers of the parent bank shall
be responsible for the groups
compliance.
X341.13 - X341.14 (Reserved)
X341.15 Sanctions. The following
sanctions shall be applicable for any
violation of this Section:
a. For non-compliance/undercompliance
(1) Daily fine in proportion to degree
of compliance shall be imposed depending
on the total assets of the banks as of the
reporting period:
Maximum
Daily
Total Assets
Fine
P 100
P100.0 million and below
200
Above P100.0 million to P200.0 million 300
Above P200.0 million to P500.0 million 500
Above P500.0 million to P1.0 billion
- 1,000
Above P1.0 billion to P5.0 billion
- 3,000
- 5,000
- 10,000
- 15,000
- 30,000
Over P100.0 billion
Excess compliance in the ten percent

(10%) agrarian reform credit may be
used to offset a deficiency, if any, in the
fifteen percent (15%) agricultural credit
in general, but not vice versa. The daily
fine shall be counted from the end of
reference quarter until the date the bank
has complied with the credit allocation
requirements and files an amended report.
In case of a violation noted during
examination or verification, monetary
penalty shall run from the date of findings
until the violation is corrected; and
Part III - Page 48
(2) Non-monetary fines

In addition to the above daily monetary
fines, any or all of the administrative
sanctions as provided under Section 37 of
R.A. No. 7653, may be imposed upon any
bank for non-compliance/undercompliance,
willful delay or refusal to submit reports
without prejudice to criminal sanctions
against culpable persons provided under
Sections 34, 35 and 36 of R. A. No. 7653,
as follows:
(a) Suspension of rediscounting
privileges or access to BSP facilities;
(b) Suspension of lending or FX
operations or authority to accept new
deposits or make new investments;
(c) Suspension of interbank clearing
privileges; and/or
(d) Revocation of QB license.
b. For non-submission and delayed/
amended reports
The following fines shall be imposed
for non-submission and delayed/
amended reports on compliance with the
mandated credit allocations for agri-agra
credit under P.D. No. 717, to be
reckoned on the following day after due
date of submission or until the proper
report is filed with the BSP:
(1) UBs/KBs/FXBs
(2) TBs
(3) RBs/Coop Banks
P1,200 per day

600 per day
180 per day
Non-submission
or
delayed
submission of reports for two (2) or more
times in any four (4)-quarter period shall
be subject to twice the prescribed
monetary penalty for willful delay or
refusal to submit reports.
Sec. X342 Mandatory Allocation of Credit

Resources to Micro, Small and Medium
Enterprises. The following rules shall
govern the mandatory allocation of credit
resources to MSMEs.
X342.1 - X342.2
08.12.31

a. Lending institutions shall refer to all
banks, namely: UBs, KBs, TBs and RBs/
Coop Banks, including government-owned
banks.
b. Total loan portfolio shall include all
loans and receivables, other than those
booked in the FCDU/EFCDU as defined
in the Manual of Accounts Section of the
FRP under Subsec. X162.16, as amended
(gross of allowance for credit losses)
excluding the following:
(1) Interbank loans receivable, other
than (a) wholesale lending of a bank to
conduit banks/QBs for on-lending to
MSMEs, and (b) rediscounting facility
granted to another bank for loans to MSMEs;
(2) Wholesale lending of a bank to
conduit non-bank FIs without quasi-banking
authority, other than those for on-lending
to MSMEs;
(3) Loans granted under special
financing programs, other than those for
MSMEs;
(4) Loans granted to MSMEs, other than
to BMBEs, to the extent funded by
wholesale lending of, or rediscounted with,
another bank;
(5) Agrarian reform credits/other
agricultural loans granted under P.D. No.
717, other than those eligible for
compliance with the mandatory allocation
of credit for MSMEs, as well as
development loans incentives under R.A.
No. 7721 granted by banks other than
branches of foreign banks; and
(6) Loans and receivables arising from
repo agreements, certificates of
assignment/participation with recourse and
securities lending and borrowing
transactions.
c. MSMEs shall refer to any business
activity within the major sectors of the
economy, namely: industry, trade,

services, including the practice of ones
profession, the operation of tourism-related
establishments, and agri-business, which
for this purpose refers to any business
activity involving the manufacturing,
processing, and/or production of
agricultural produce, whether single
proprietorship, cooperative, partnership or
corporation:
(1) whose total assets, inclusive of those
arising from loans but exclusive of the land
on which the particular business entitys
office, plant and equipment are situated, must
have a value falling under the following
categories:
Micro
: not more than P 3,000,000
Small
: more than P 3,000,000 to P 15,000,000
Medium : more than P 15,000,000 to P 100,000,000
and
(2) duly registered with the appropriate
agencies as presently provided by law except
in the case of microenterprises as defined
above.
X342.2 Period covered; prescribed

portions of loan portfolio to be allocated
Banks shall for a period of ten (10) years
from 17 June 2008 to 16 June 2018, allocate
at least eight percent (8%) for micro and
small enterprises (MSEs) and at least two
percent (2%) for medium enterprises (MEs)
of their total loan portfolio based on their
balance sheet as of the end of previous
quarter, and make it available for MSME
credit.
Banks may be allowed to report compliance
on a groupwide (i.e., consolidation of parent
and subsidiary bank/s) basis so that excess
compliance of any bank in the group can
be used as compliance for any deficient
Part III - Page 49
X342.2 - X342.3
08.12.31
bank in the group: Provided, That the

subsidiary bank/s is/are at least majority
owned by the parent bank: Provided,
further, That the parent bank shall be held
responsible for the compliance of the
group.
The consolidated report shall be
submitted by the parent bank in the
prescribed form and shall be supported by
the individual reports of the bank and its
subsidiaries duly signed by each banks
authorized signatory.
compliance with the mandated allocation
of credit resources to MSMEs, only eligible
credit exposures as enumerated in Subsec.
X342.3, other than those booked in the
FCDU/EFCDU shall be considered.
X342.3 Eligible credit exposures

Funds set aside in accordance with the
foregoing requirement shall be made
available for any of the following:
a. For MSEs
(1) Actual extension of loans to eligible
MSEs, other than to BMBEs which are
covered in Item c(3) hereof: Provided,
however, That loans granted to MSEs other
than BMBEs, to the extent funded by
wholesale lending of, or rediscounted with,
another bank shall not be eligible as
compliance with the mandatory credit
allocation; or
(2) Loans granted to export, import,
and domestic micro and small scale traders,
other than to BMBEs which are covered in
Item c(3) hereof: Provided, however,
That loans granted to MSEs other than
BMBEs, to the extent funded by wholesale
lending of, or rediscounted with another
bank shall not be eligible as compliance
with the mandatory credit allocation; or
(3) Purchase of eligible MSE loans
listed in Items (1) and (2) above on a
without recourse basis from other banks
and FIs; or
Part III - Page 50
(4) Purchase/discount on a with or

without recourse basis of MSE receivables,
other than BMBE receivables which are
covered in Item c(3) hereof; or
(5) Wholesale lending or rediscounting
facility granted to PFIs for on-lending to
MSEs, other than to BMBEs which are
export, import, and domestic micro and small
scale traders, other than to BMBEs which are
(7) Commercial letters of credit
outstanding, net of margin deposits, issued
for the account of MSEs.
b. For MEs
(1) Actual extension of loans to eligible
MEs: Provided, however, That loans granted
to MEs to the extent funded by wholesale
lending of, or rediscounted with, another
bank shall not be eligible as compliance with
the mandatory credit allocation; or
(2) Loans granted to export, import,
and domestic medium scale traders:
Provided, however, That loans granted to
MEs to the extent funded by wholesale
lending of, or rediscounted with, another
bank shall not be eligible as compliance
with the mandatory credit allocation; or
(3) Purchase of eligible ME loans
listed in Items (1) and (2) above on a
without recourse basis from other
banks and FIs; or
(4) Purchase/discount on a with or
without recourse basis of ME
receivables; or
(5) Wholesale
lending
or
rediscounting facility granted to PFIs for
on-lending to MEs; or
export, import, and domestic medium
scale traders; or
(7) Commercial letters of credit
outstanding, net of margin deposits, issued
for the account of MEs.
X342.3 - X342.7
08.12.31
c. Alternative compliance for either or

both MSEs or/and MEs
(1) Paid subscription/purchase of
liability instruments as may be offered by
the SB Corporation; or
(2) Paid subscription of preferred
shares of stock of the SB Corporation; or
(3) Loans from whatever sources
granted to BMBEs as provided under
Subsec. X365.5.
(As amended by Circular Nos. 625 dated 14 October 2008 and
570 dated 24 May 2007)
X342.4 Ineligible credit instruments

The purchase of government notes,
securities and negotiable instruments other
than the instruments offered by SB
Corporation, and the granting of loans to
MSMEs, other than to BMBEs, to the extent
funded by wholesale lending of, or
rediscounted with, another bank shall not
be deemed compliance with the foregoing
requirement.
X342.5 Rights/remedies available

to lending institutions not qualified to
acquire or hold lands of public domain
Lending institutions which are not qualified
to acquire or hold lands of the public
domain in the Philippines shall be
permitted to bid and take part in sales of
mortgaged real property in case of judicial
or extra-judicial foreclosure, as well as
avail of receivership, enforcement and
other proceedings, solely upon default
of a borrower, and for a period not
exceeding five (5) years from actual
possession: Provided, That in no event
shall title to the property be transferred
to such lending institution. If the lending
institution is the winning bidder, it may,
during said five (5) year period, transfer
its rights to a qualified Philippine national,
without prejudice to a borrowers rights
under applicable laws.
X342.6 Submission of reports. Banks

shall submit reports on compliance with the
mandatory credit allocation on a quarterly
basis within fifteen (15) banking days from
the end of reference quarter to SDC of the
BSP. Said report shall be considered
Category A-3 report. It shall become
effective starting with the reporting period
ending 31 December 2008.
Banks shall maintain appropriate records/
details of the reported loans to MSMEs and
shall make these available to BSP.
X342.7 Sanctions. The following

administrative sanctions shall be imposed
on banks:
a. For non-compliance/under compliance
with the prescribed portions of loan
portfolio to be allocated to MSEs and MEs:
(1) For zero compliance for both MSEs
and MEs P500,000;
(2) For under compliance:
(a) For MSEs percentage of undercompliance multiplied by P400,000
(b) For MEs percentage of undercompliance multiplied by P100,000
to be computed as of end of each quarter.
(3) For willful making of a false or
misleading statement to the BSP - P500,000
per quarter-end report without prejudice to the
sanctions under Section 35 of R.A. No. 7653.
The imposition of the fines in Items
(1) to (2) shall be without prejudice to
the other administrative sanctions under
(b) For non-submission/delayed
submission of reports on compliance with
both the prescribed portions of loan
portfolio to be allocated to MSEs and MEs,
respectively:
(1) UBs/KBs
- P1,200
(2) TBs
600
(3) RBs/Coop Banks 180
per calendar day of delay.

(As amended by Circular No. 625 dated 14 October 2008 and 585
dated 15 October 2007)
Part III - Page 50a
X342.8 - X343.2
08.12.31
X342.8 Disposition of penalties

collected. Ninety percent (90%) of
penalties collected under Subsec. X342.7
above shall be remitted by the BSP to the
MSME Development Council Fund,
while the remaining ten percent (10%)
shall be retained by the BSP to cover its
administrative expenses.
(Circular No. 625 dated 14 October 2008)
X342.9 - X342.14 (Reserved)

X342.15 Accreditation guidelines for
Rural and Thrift Banks under the SME
Unified Lending Opportunities for
National Growth (SULONG). Without
prejudice to the refinements as may be
suggested by DTI and DOF, the Twelve
(12)-Point Accreditation Guidelines for RBs
and TBs, and the lending features of short
and long term loans for direct or retail
lending by participating government FIs
under the SULONG, are shown in
Appendix 55.
G. SPECIAL TYPES OF LOANS
Sec. X343 Interbank Loans. Interbank
loan transactions shall include, among
other things, (a) interbank call loan (IBCL)
transactions; (b) borrowings evidenced by
deposit substitute instruments; and
(c) purchases of receivables with recourse:
Provided, however, That only IBCL
transactions which are evidenced by
interbank loan advice or repayment
transfer tickets and settled through the
banks respective DDAs with BSP shall
be subject to the reserve requirement

prescribed for IBCL in Subsec. X253.1:
Provided, further, That funds borrowed
by banks from trust departments of banks
or IHs shall be excluded from the herein
definition of interbank loan transactions.
Interbank loan transactions not
submitted to the BSP Comptrollership
Department by means of interbank loan
advice or repayment transfer tickets shall be
reported to the BSP in the prescribed form.
X343.1 Systems and procedures for
interbank call loan transactions. IBCL
transactions of banks shall be governed by
the Agreement for the PhilPaSS executed
on 12 December 2002 between the BSP
and the Bankers Association of the
Philippines (BAP) /Chamber of Thrift Banks
(CTB)/Rural Bankers Association of the
Philippines (RBAP) and any subsequent
amendments thereto.
(As superseded by the agreement between the BSP and BAP/
CTB/RBAP dated 12 December 2002)
X343.2 Accounting procedures

a. Both lending and borrowing banks
shall immediately pass the corresponding
entries in their books and, upon receipt of
a copy of the transfer instruction reported
as matched in the Multi-Transaction
Interbank Payment System (MIPS), the
borrowing bank shall attach the same to
the corresponding ticket debiting its Due
from BSP account in its books and, in the
case of the lending bank, to the same
ticket passed in its books on the day
payment is made.
Part III - Page 50b
X343.2 - X344.2
08.12.31
b. IBCL transactions shall be

recorded by the borrowing bank as Bills
Payable Interbank Call Loans.
c. Banks shall reconcile their
demand deposit accounts with the BSP
against monthly statements of account to
be furnished by the BSP Comptrollership
Department.
X343.3 Settlement procedures for
interbank loan transactions. Interbank loan
transactions (call and term) among banks
shall be settled gross with finality subject to
the availability of balances in the deposit
reserves maintained by banks in the BSP
in accordance with the provisions of the
Agreement for the PhilPaSS executed on
12 December 2002 between the BSP and
the BAP/CTB/RBAP and any subsequent
amendments thereto.
(As superseded by the agreement between the BSP and the
BAP/CTB/RBAP dated 12 December 2002)
Sec. X344 Loans to Thrift/Rural/

Cooperative Banks
X344.1 Loans under Section 12 of
R.A. No. 7353, Section 10 of R.A. No.
7906 and Article 108, R.A. No. 6938
Banks may rediscount papers of TBs/RBs/
Coop Banks. Banks shall specify the nature
of papers acceptable for rediscounting as
well as the rediscount rate.
X344.2 Loans under Section 14 of
R.A. No. 7353. The following are the
guidelines in the grant by the LBP, DBP
or any government-owned or controlled
bank or FI of a loan to an RB under
a. Issuance of certification. Subject to
the qualifications of the RBs prescribed in
Item b hereof, the Monetary Board shall
issue the certification required under
Section 14 of R.A. No. 7353, which shall
be final, after the Monetary Board has
determined that:
(1) The resources of the RB are

inadequate to meet the legitimate credit
needs of the locality wherein the RB is
established;
(2) There is dearth of private capital in
said locality; and
(3) It is not possible for the
stockholders of the RB to increase the
paid-up capital thereof.
The appropriate department or office
of the BSP may prescribe and require the
submission by the RB of papers and
documents
necessary
for
such
determination.
b. Qualifications for loan. In order to
qualify for the financial assistance under
said provision of law, the RB shall first meet
(1) Its capital-to-risk assets ratio during
the last six (6) months immediately
preceding the loan application should be
at least ten percent (10%);
(2) Its past due loans are not more than
twenty-five percent (25%);
(3) It has no deficiency in allowance for
probable losses on loans and other risk assets;
(4) It must not have incurred
deficiency in its reserves against deposit
liabilities for the last six (6) months
preceding the filing of the application;
(5) It must have been operating
profitably for the last three (3) years;
(6) Its arrearages with the BSP or other
government FIs, if any, are being liquidated
through an approved plan of payment, the
conditions of which are being complied
with; and
(7) It is operating substantially in
accordance with applicable laws and BSP
rules and regulations.
c. Extension of loan. The LBP, the DBP
or any government-owned or controlled
bank or FI shall, within sixty (60) days from
issuance by the Monetary Board of the
certification, and subject to their loan and
investment policies, extend to an RB a loan
or loans from time to time, repayable in ten
Part III - Page 51
X344.2 - X348.1
06.12.31
(10) years, with concessional rates of interest,

against security/ies which the stockholder or
stockholders of the RB may offer.
Sec. X347 Standby Letters of Credit. The
following shall govern the issuance of
standby letters of credit.
X347.1 Domestic standby letters of
credit. Domestic standby letters of credit
may be issued or used in transactions other
than those involving movement of goods
under the following guidelines:
a. The banks obligation to pay shall
be either unconditional (as against
presentation of a clean draft) or conditional
only upon the presentation of documents
and not upon actual existence or nonexistence of facts, i.e., the bank must not
be called upon to determine disputed
questions of facts or law;
b. The banks obligation shall be
limited to a fixed maximum amount;
c. The banks obligation shall have an
expressed expiration date;
d. The standby letters of credit
accommodation shall not violate any law
or existing BSP directives, rules and
regulations, such as the SBL and DOSRI
ceilings;
e. The party who opened the standby
letters of credit or the ultimate borrower
shall not have any past due obligation with
the issuing bank for the ninety (90)-day
period preceding the date of issuance of
the letter of credit; and
f. The party who opened the letter of
credit (borrower or principal obligor) must
have an unqualified obligation to
reimburse the bank on the same condition
as the bank has paid.
X347.2 Ceiling. The total guarantees

or similar arrangements, the nature of
Part III - Page 52
which requires the guarantor to assume the

liabilities/obligations of third parties in case
of their inability to pay, that may be issued
by a bank and outstanding at any given
time, shall not exceed one hundred
percent (100%) of the banks qualifying
capital.
Transitory provision. This Subsection
is also covered by the last paragraph of
Subsec. X303.5.
X347.3 Reports. Banks shall submit
a monthly report of domestic standby letter
of credit opened and outstanding in the
prescribed form within fifteen (15) banking
days after end of reference month to the
report shall contain the following
minimum information:
(1) Date the letter of credit was opened;
(2) Amount, purpose and accountee
thereof;
(3) Beneficiary;
(4) Security and value of security;
(5) Expiry date of the letter of credit;
and
(6) Certification as to the correctness
of the report by an authorized officer of
the bank.
Sec. X348 Committed Credit Line for
Commercial Paper Issues. The following
guidelines shall govern committed credit
line agreements as a prerequisite for
corporations proposing to issue
commercial paper, pursuant to the New
Rules on the Registration of Short-Term
Commercial Papers (Appendix 14).
X348.1 Who may grant line facility
A bank with a net worth of at least P1.0
billion as defined in Sec. X106, may
provide a committed credit line facility to
a commercial paper issuer.
The bank shall exercise proper caution
in ascertaining that the party, in whose favor
the credit line shall be granted, is capable
X348.1 - X348.5
05.12.31
of fulfilling his commitments to the bank

under the credit line agreement.
A bank or a group of banks may enter
into a committed credit line agreement with
any corporation proposing to issue
commercial paper. Where a group of banks
is involved, a lead bank shall be designated
from among themselves.
X348.2 Ceilings. The aggregate
commitments under committed credit line
agreements entered into by each bank
pursuant to this Section shall not exceed an
amount equivalent to thirty percent (30%)
of its net worth, reckoned as of the date
of execution of the latest agreement:
Provided, That in no case shall a bank
extend commitments to a single issuer for
more than twenty-five percent (25%) of its
net worth exclusive of other exposures to
the said issuer.
X348.3
Terms; conditions;
restrictions. The committed credit line
agreement shall incorporate the following
terms, conditions and restrictions:
a. That the credit line agreement is
executed pursuant to the provisions of this
Section;
b. That the bank or banks are
committed to make available to the issuer
funds equivalent to at least twenty percent
(20%) of the aggregate of the commercial
paper issued and outstanding at any time;
c. That the commitment of the bank
or banks shall be firm and irrevocable and
effective for as long as the issues under a
particular permit are outstanding, subject to
renewal by the bank;
d. That availments pursuant to the
credit line agreement shall be for the
exclusive purpose of meeting obligations
arising from commercial paper issues in
accordance with the provisions of the Rules
on Registration of Commercial Papers,
which availments shall be honored not
earlier than three (3) banking days prior to
the date of payment of obligation arising

from outstanding commercial paper;
e. That the request to avail of the credit
line agreement shall be addressed to the
bank or to the lead bank acting for a group
of banks, which request shall be duly signed
by a member of the board of directors and a
senior ranking officer of the commercial
paper issuer duly authorized for the purpose
through an appropriate board resolution,
which resolution shall also provide for the
designation of the alternate signatories who
shall likewise be a member of the board of
directors and a senior financial officer of the
corporation;
f. That the extent of the commitment
of each participant in a group of banks under
a credit line agreement shall be stipulated
in the agreement; and
g. That the commitment of the bank
under the credit line agreement shall be a
net risk to the bank and the practice of
requiring the commercial paper issuer to
maintain a compensating deposit with the
bank shall be prohibited.
X348.4 Reports to the Bangko
Sentral. The bank or the lead bank, as the
case may be, shall report to the BSP:
a. All commitments entered into with
commercial paper issuers within ten (10)
banking days after the issuer shall have been
authorized by the SEC; and
b. Any availment under the committed
credit line agreement within three (3) banking
days from date of drawdown.
X348.5 Loan limit. The liabilities of
a commercial paper issuer to a bank arising
from the availment by the issuer of the credit
line agreement shall not be counted in
determining compliance by the bank with
the SBL: Provided, That in no case shall they
exceed five percent (5%) of the net worth of
the bank beyond the normal applicable SBL
for a period of 180 days from each availment
of the credit line.
Part III - Page 53
X349 - X361.1
05.12.31
Sec. X349 Agriculture and Fisheries

Projects with Long Gestation Periods
Pursuant to Section 24 of R.A. No. 8435
(Agriculture and Fisheries Modernization
Act of 1997), agriculture and fisheries
projects with long gestation periods shall
be entitled to longer grace periods in
repaying the loan based on the economic
life of the project. For purposes of this
Section, the following definitions and
guidelines shall govern the grant of loans
for long-gestating agriculture and fisheries
projects.
a. Gestation period shall refer to the
span of time from the commencement of
the project to the time that it is economically
productive and producing revenues; and
b. Grace period under this Section
shall refer to the period that the initial
amortization payment on the loan is
deferred. All payments, however, must be
made on or before the maturity of the loan.
X349.2 Grace period. Banks are
allowed to extend loans/guarantees with a
grace period of up to seven (7) years to
viable long-gestating agriculture and
fisheries projects.
Suggested gestation and grace periods
for some of the long-gestating projects are
in Appendix 36.
X349.3 Responsibility of lending
banks. Lending banks shall institute the
necessary safeguards and precautions to
ascertain the viability of the projects
financed and the capability of the borrower
in fulfilling his commitments.
X349.4 Past due loans. The rule on
past due accounts under Sec. X306 shall
apply except that the reckoning date shall
be the grace period and not the original
maturity of the loan.
Part III - Page 54
X349.5 Non-performing loans. The

rule on non-performing loans under Sec.
X309 shall apply except that the reckoning
date shall be the grace period and not the
original maturity of the loan.
Sec.
X361 Microfinancing Loans
Pursuant to Sections 40, 43 and 44 of R.A.
No. 8791 the following rules, regulations
and standards shall govern microfinancing
operations of banks.
In the implementation of this Section,
banks should be guided by the Notes on
Microfinance in Appendix 45.
X361.1 Definition
a. Microfinancing loans are small
loans granted to the basic sectors, as defined
in the Social Reform and Poverty Alleviation
Act of 1997 (R.A. No. 8425), and other loans
granted to the poor and low-income
small businesses so as to enable them to raise
their income levels and improve their living
standards. These loans are granted on the
basis of the borrowers cash flow and are
typically unsecured.
b. Portfolio-at-Risk (PAR) is the
outstanding principal amount of all loans
that have at least one (1) installment past
due for one (1) or more days. The amount
includes the unpaid principal balance but
excludes accrued interest. Under PAR,
loans are considered past due if a payment
has fallen due and remained unpaid. Loan
payments are applied first to any interest
due, then to any installment of principal that
is due but unpaid, beginning with the earliest
installment. The number of days of lateness
is based on the due date of the earliest loan
installment that has not been fully paid.
c. Restructured loans are loans that
have been renegotiated or modified to
either lengthen or postpone the original
X361.1 - X361.4
05.12.31
scheduled installment payments or

substantially alter the original terms of the
loans. Any increase in the face amount of
the debt resulting from accrued interest and
accumulated charges which have been
capitalized or made part of the principal of
restructured loans shall be recorded in the
unearned income/deferred credit account
Capitalized Interest and Other Charges Restructured Loans. Upon receipt of
payment, the realized portion shall be
amortized/credited to income.
d. Refinanced loans are loans that
have been disbursed to enable repayment
of prior loans that would not have been
paid in accordance with the original
installment schedule. Loans granted within
a week or less from the date an original
loan with more than thirty percent (30%)
of the original principal still outstanding
had been paid in advance shall be
considered as refinanced loans.
Refinanced loans shall be classified and
reported as restructured loans.
X361.2 Loan limit; amortization;
interest
a. The maximum principal amount of
microfinance loans shall not exceed
P150,000. This is equivalent to the
maximum
capitalization
of
a
microenterprise under R.A. No. 8425.
b. The schedule of loan amortization
shall take into consideration the projected
cash flow of the borrowers which is
adopted into the terms and conditions
formulated. Hence, microfinance loans
may be amortized on a daily, weekly,
bi-monthly or monthly basis, depending on
the cash flow conditions of the borrowers.
c. Interest on such microfinancing
loans shall be reasonable and just as may
be determined by management to be
consistent with its credit policies. The
interest rate shall not be lower than the
prevailing market rates to enable the
lending institution to recover the financial

and operational costs incidental to this type
of microfinance lending.
d. Interest accrued and/or booked
shall be reversed and no accrual of interest
shall be allowed after the microfinance loan
has become past due as defined in Subsec.
X306.1.h.
X361.3 Credit information

exemption. In cases of microfinancing loans
which meet the criteria in Subsec X361.2, a
bank may not require from its credit
applicants, a statement of assets and
liabilities, and of their income and
expenditures and such information as may
be prescribed by law or by rules and
regulations of the Monetary Board to enable
the bank to properly evaluate the credit
application which includes the corresponding
financial statements submitted for taxation
purposes to the BIR, as prescribed under
X361.4 Exemptions from rules on
unsecured loans. In view of the unique
characteristics of microfinance loans, i.e.,
small unsecured and based on cash flow of
borrowers, these loans may be exempted
from rules and regulations which may be
issued by the Monetary Board with respect
to unsecured loans under Section 41 of the
General Banking Law of 2000: Provided,
That the bank has:
a. well-defined standards, credit
policies and procedures for microfinance
loans which are in conformity with
microfinance international best practices;
b. specific measures to be undertaken
to ensure collection such as close supervision
of borrowers projects and operations; and
c. Loan Portfolio and Other Risk
Assets Review System required under
Sec. X302 which would serve as:
(1) An adequate loan tracking system
that allows daily monitoring of the status of
Part III - Page 55
X361.4 - X361.5
08.12.31
loan releases, collection and arrearages, any

restructuring or refinancing; and
(2) A regular monitoring of past due
loans and portfolio at risk.
Subject
Payment
Particulars
Frequent amortization
With savings component
Loan payments should not
exceed 60% of clients income
X361.5 Housing microfinance loan

The following provisions govern the grant
of housing microfinance loans:
a. Banks that intend to provide the
housing microfinance loans must first be
accredited by the HUDCC in accordance
with the accreditation criteria and
conditions provided under the MOA
between the BSP and the HUDCC. The
loans must likewise be provided pursuant
to the terms of the Housing Microfinance
Product Manual jointly approved by the BSP
and HUDCC.
The approved product has the following
salient features:
(1) It has the following basic
characteristics:
Subject
Purpose
Particulars
House construction
House and/or lot acquisition
Home improvement/repairs
Eligibility
Existing microfinance clients

New clients without access to
formal housing finance
institutions (but with verifiable
proof of income)
Loan Amount Up to P300,000 for house

construction and/or lot
acquisition (must show
tenure security)
Up to P150,000 for home
improvement/repairs
Loan Value
Up to ninety percent (90%) of the

appraised value in case of REM
Acceptable valuation in cases
of usufruct, leases, etc.
Capacity to pay based on
cash flow analysis
Part III - Page 56
as determined by cash flow

analysis
Terms
Up to 10 years for house

construction and house and/or
lot acquisition
Up to 5 years for home
improvement/repairs
(2) The loan shares the characteristics

of the microfinance loan except for the
following:
(a) The maximum loan amount is
P 300,000 (microfinance loans have a
maximum of P150,000)
(b) The loans have longer terms with a
maximum of five (5) years for home
improvement/repairs and ten (10) years for
house construction and house/lot
acquisition.
(c) While most clients for housing
microfinance loans are existing microfinance
clients who have demonstrated a good track
record with the bank, new clients may also
be accepted subject to certain requirements.
(d) For house construction and house/
lot acquisition loans, secure tenure
instruments will be used as collateral.
(3) Due to the features that are different
from the typical microfinance loan, the
following additional risk management
features are embedded in the product:
(a) Clients ability to repay based on
cash flow analysis and affordability (loan
payment < 60% of income) especially the
new clients. In addition, new clients have
to demonstrate that they cannot access any
other formal housing finance facility;
(b) Savings typically a requirement;
(c) Secure tenure instruments as
collateral/collateral substitutes;
X361.5 - X365.1
08.12.31
(d) Additional risk cover may be

availed from HGC cash flow guarantee
program;
(e) Adequate loan monitoring,
collection, control, provisioning;
(f) Accreditation from the HUDCC
with standards approved by the BSP and
formalized by a MOA between HUDCC
and BSP; and
(g) Mortgage redemption insurance
provided in case of death and permanent
disability.
b. Banks intending to provide housing
microfinance loans not under Item a
hereof shall present the relevant product
manual for BSP consideration and approval.
The following are the incentives for
housing microfinance loans in addition to
existing incentives available for
microfinance:
(a) Housing microfinance loans shall
be eligible as alternative compliance to the
mandatory credit allocation requirement to
agrarian reform and other agricultural credit.
(b) The loans shall have an assigned
risk-weight of fifty percent (50%) when not
guaranteed and zero percent (0%) when
guaranteed by the HGC.
(c) When the volume of large banks
housing microfinance loans have reached
a desirable level, their business transactions
(i.e. securitization, outright purchase, etc.)
shall be considered as an alternative
compliance with the mandatory credit
allocation requirement to agrarian reform
and other agricultural credit;
(d) If secured by REM, a ninety percent
(90%) loan valuation may be allowed
considering the guarantee component.
(e) Secure tenure instruments such as
freehold, usufruct, leasehold and right to
occupy and/or build shall be recognized as
collateral/collateral substitute subject to
approved loan valuations (Appendix 81).
(f) Housing microfinance loans shall
not exceed thirty percent (30%) of the total
loan portfolio.
(g) Recording of portfolio at risk (PAR)

and the provisioning requirement for
microfinance loans under Appendix 18 for
home improvement/repair loans. Provisioning
for house construction and house/lot
acquisition shall follow those of regular
loans under Appendix 18.
Banks which will grant housing
microfinance loans must:
(1) include the loan in the banks
microfinance manual as one of the types of
services or products offered to prospective
clients; and
(2) maintain a sub-control ledger for
the loan.
(M-2008-015 dated 19 March 2008)
to any or all of the following sanctions:
a. Disqualification of the bank
concerned from the credit facilities of the
BSP except as may be allowed under
Section 84 of R.A. No. 7653;
b. Prohibition of the bank concerned
from the extension of additional
microfinance loans; and
c. Penalties and sanctions provided
under Sections 36 and 37 of R.A. No. 7653.
Sec. X365 Loans to Barangay Micro
Business Enterprises. The following are the
rules and regulations to implement Section
9 and the second paragraph of Section 13
of R.A. No. 9178, otherwise known as the
Barangay Micro Business Enterprises
(BMBEs) Act of 2002.
X365.1 Credit delivery. The LBP,
the DBP, the SBGFC, and the Peoples Credit
and Finance Corporation (PCFC) shall set
up a special credit window that will service
the financing needs of duly registered
Part III - Page 57
X365.1 - X365.5
08.12.31
BMBEs consistent with BSP policies, rules

and regulations. Said special credit window
shall service the credit needs of BMBEs
either through retail or wholesale lending,
or both, as the concerned FIs may deem
consistent with their corporate policies and
objectives. The GSIS and the SSS shall
likewise set up special credit window that
will serve the financing needs of their
respective members who may wish to
establish a BMBE.
Said FIs are encouraged to wholesale
funds to accredited private FIs including
community based organizations such as
cooperatives, NGOs and peoples
organizations engaged in granting credit,
for relending to BMBEs.
Private banking and other FIs are
encouraged to lend to BMBEs.
X365.2 Interest on loans to BMBEs
Interest on BMBE loans shall be just and
reasonable as may be determined by
management of the concerned entity to be
consistent with its credit policies.
X365.3 Amortization of loans to
BMBEs. The schedule of loan amortization
shall take into consideration the projected
cash flow of the borrowers. Thus, loans
granted to BMBEs may, at the discretion of
the lender, be amortized daily, weekly,
monthly or at such interval as the conditions
of the business of the BMBEs may warrant.
X365.4 Waiver of documentary
requirements. Banks and other FIs shall
not require from duly registered BMBE
borrowers the submission of ITR as a
condition to the grant of loans considering
that BMBEs are exempted from income tax
for income arising from their operations.
They may, at their discretion, also waive
the requirement of submission of financial
statements from BMBEs: Provided, That
before granting any loan, banks shall
undertake reasonable measures to
Part III - Page 58
determine that the borrower is capable of

fulfilling his/its commitments.
X365.5 Incentives to participating
financial institutions. To encourage BMBE
lendings, the following incentives shall be
granted to banks and other FIs as may be
applicable:
a. All loans from whatever sources
granted to BMBEs under R.A. No. 9178
(BMBEs Act) shall be considered as part of
alternative compliance to P.D. No. 717 or
to R.A. No. 6977, as amended. For
purposes of compliance with P.D. No. 717
and R. A. No. 6977, as amended, loans
granted to BMBEs under the BMBEs Act
shall be computed at twice the amount of
the outstanding balance of the loans:
Provided, That loans used as alternative
compliance with P.D. No. 717 which were
computed at twice their outstanding
balance shall no longer be eligible as
compliance with R.A. No. 6977, as
amended during the same period and vice
versa: Provided, further, That said loans
may be used as alternative compliance with
both P.D. No. 717 and R.A. No. 6977, as
amended at the same time at the maximum
amount of 100% of their outstanding
balance each: Provided, furthermore, That
funds loaned by or rediscounted with
government-owned banks and other
government FIs to accredited private
banking and other FIs for on-lending to
BMBEs shall be eligible as part of alternative
compliance for P.D. No. 717 or for R.A.
No. 6977, as amended, of the governmentowned banks and the accredited private
banks at the maximum amount of 100% of
their outstanding balance each: Provided,
finally, That loans used as alternative
compliance with R.A. No. 6977, as
amended, computed at either twice their
outstanding balance or their maximum
amount of 100% may be used as alternative
compliance for either or both the prescribed
portions of loan portfolio to be allocated to
X365.5 - X376.5
08.12.31
MSEs and MEs, respectively, as long as the

aggregate amount used does not exceed twice
their outstanding balance or their maximum
amount of 100%, as the case may be.
b. Any existing laws to the contrary
notwithstanding, interests, commissions and
discounts derived from the loans by the LBP,
DBP, PCFC, SBGFC granted to BMBEs as well
as loans extended by the GSIS and SSS to their
respective member-employees under BMBEs
Act and this Section shall be exempt from
gross receipt tax (GRT).
X376.1 Conditions for investment in

equities. A bank shall not invest in the
equity of any enterprise, if the investing
bank is in any of the following situations:
a. Its capital is impaired, whether by
actual losses or unbooked valuation
reserves required by the BSP;
b. Its lending operations had been
suspended on account of reserve or capital
deficiency, until such suspension shall have
been lifted for at least one (1) year and
sufficient reserves or capital shall have been
maintained;
c. It incurred losses from its operations
during the preceding year;
d. It has not fully booked the valuation
reserves and other capital adjustments
required by the BSP;
e. It has exceeded the individual and
aggregate ceilings as well as the ceiling on
unsecured credit accommodations to
DOSRI; and
f. Its ratio of past due loans to total loan
portfolio exceeds twenty percent (20%).
X365.6 Credit guarantee. The

SBGFC and the Quedancor under the DA,
in case of agri-business activities, shall set
up a special guarantee window to provide
credit guarantee to BMBEs under their
respective guarantee programs.
X365.7 Record. The LBP, DBP,
PCFC and SBGFC shall maintain separate
records of loans granted to BMBEs and the
GSIS and SSS shall maintain records of
loans extended to their respective members
who wish to establish BMBEs.
X365.8 Reports to Congress. The
LBP, DBP, PCFC, SBGFC, SSS, GSIS and
Quedancor shall report annually to the
appropriate Committees of both Houses
of Congress, the status of their
implementation of the provisions of
X365.9 Administrative sanctions
Any violation by the concerned
government FI of the provisions of Section
9 of R.A. No. 9178 shall be subject to a
fine of not less than P500 thousand to be
imposed by the BSP and which shall be
payable to the BMBE Development Fund.
In case of a banking institution, the
foregoing fine shall be without prejudice
to the administrative sanctions provided for
under Section 37 of R.A. No. 7653.
H. EQUITY INVESTMENTS
Sec. X376 Scope of Authority. The
following rules shall govern the investment
of banks in the equities of allied
undertakings, whether financial or nonfinancial, and non-allied undertakings,as
well as the establishment/acquisition of
subsidiaries and affiliates abroad.
X376.2 - X376.4 (Reserved)

X376.5 Guidelines for major
investments. The following are the
guidelines for major acquisitions or
investments by a bank including corporate
affiliations or structures to implement
a. Definition. Major investments are
those investments in allied or non-allied
Part III - Page 58a
X376.5
05.12.31
undertakings including corporate affiliations

or structures that give the bank significant
interest and/or control, such as stockholdings
sufficient to elect one (1) member to the
acquired entitys board of directors.
b. Criteria for major investments. Any
major investment by a bank should be
approved by the banks board of directors.
In acting on such investments the Board
shall consider the following:
(1) Such investment must be in
accordance with the banks business plan
and management objectives, taking into
consideration the economic developments
and future prospects. The interests of the
different stakeholders of the bank shareholders, depositors and creditors should always be considered before any
investment is made.
(2) Such investments will complement/
support the main business of the banks.
Extra caution should be taken when
investing in activities where the bank has
no managerial or technical expertise, or
businesses/industries, which are high-risk.
(3) Bank management shall provide for
an efficient and effective exit mechanism
or contingency plan in case the investees
operations fail or do not prosper.
c. Prior BSP approval; information/
documents required. Subject to prior
approval of the BSP, banks may invest in
allied or non-allied undertakings, including
corporate affiliations or structures. A bank
intending to make such investment shall
submit the following information/
documents to the appropriate department

of the SES for evaluation:
(1) Name of the company;
(2) Type of business activities;
(3) Board of directors approval on
such investments;
(4) Certification from the banks board
of directors that the criteria enumerated in
Item b are complied with;
(5) Management contract;
(6) Financial information and other
information about financial strengths, e.g.,
projected balance sheet and income
statements for the first three (3) years;
(7) Members of the board and senior
management;
(8) Interest to be held by the bank and the
manner in which such interest will be held; and
(9) Conformity of the investee
company for BSP to examine its books.
The BSP may impose conditions on any
approval, including conditions to address
financial, managerial, safety and
soundness, compliance, or other concerns.
Further, the BSP may disapprove a
proposed investment if it finds that the
proposal would constitute an unsafe and
unsound practice, or would violate any
law, regulation, Monetary Board
directive, or any condition imposed by,
or written agreement with, the BSP.
The BSP may prescribe other
guidelines/regulations as it may consider
necessary to ensure that banks major
investments do not expose the banks to
undue risks or hinder effective supervision.
Part III - Page 58b
X376.5 - X378
07.12.31
Within six (6) months from 07

September 2001, banks shall provide the
BSP reliable information on companies in
which they have significant interest or
control, such as but not limited to:
(i) Name of the companies;
(ii) Type of business activities; and
(iii) Interest held by the bank and
the manner in which such interest is
held.
d. Examination and inspection.
Whenever deemed necessary, BSP shall
have the authority to examine investee
companies or to verify information
provided by other supervisory authorities
such as the SEC.
The BSP shall have the authority to
seek corrective action, to issue orders to
terminate activities with or divest an
interest in an investee company, if it
believes that such action is necessary to
prevent or redress unsafe or unsound
practice by such company that poses a
material risk to the financial safety,
soundness or stability of a bank.
Sec. X377 Financial Allied Undertakings
With prior BSP approval, banks may invest
in equities of the following financial allied
undertakings, subject to the limits
prescribed under Sec. X378:
a. Leasing companies including
leasing of stalls and spaces in a commercial
establishment: Provided, That bank
investment in/acquisition of shares of such
leasing company shall be limited/
applicable only in cases of conversion of
outstanding loan obligations into equity;
b. Banks;
c. IHs;
d. Financing companies;
e. Credit card companies;
f. FIs catering to small and medium
scale industries including venture capital
corporation (VCC), subject to the
provisions of Sec. X379 and its
subsections;
g. Companies engaged in stock
brokerage/securities dealership; and
h. Companies engaged in foreign

exchange dealership/brokerage.
In addition, UBs may invest in the
following as financial allied undertakings:
(1) Insurance companies; and
(2) Holding company: Provided, That
the investments of such holding company
are confined to the equities of allied
undertakings and/or non-allied undertakings
of UBs allowed under BSP regulations.
The Monetary Board may declare such
other activities as financial allied
undertakings of banks.
The determination of whether the
corporation is engaged in a financial allied
undertaking shall be based on its primary
purpose as stated in its articles of incorporation
and the volume of its principal business.
Sec. X378 Limits on Investment in the
Equities of Financial Allied Undertakings
The equity investment of a bank in a single
financial allied undertaking shall be within
the following ratios in relation to the total
subscribed capital stock and to the total
voting stock of the allied undertaking:
ACTIVITIES
INVESTOR
UB
KB
Publicly- Not Publicly- Not
listed
listed listed
listed
Allied Enterprises
Financial Allied
Undertaking
UBs
100%
49%
KBs
100
49
TBs
100
RBs
100
Coop Banks
NA
Insurance
Companies
100
VCCs
60
Others
100
TB
Financial Allied
Undertaking
UBs
KBs
TBs
RBs
Coop Banks
Insurance
Companies
VCCs
Others
100%
49%
100
49
100
100
NA
NA
60
49
RB
Coop Banks
49%
49
49
49
NA
NA
49%
49
49
49
NA
NA
49%
49
49
100
30
NA
60
40
49
40
49
40
Part III - Page 59
X378 - X379.2
07.12.31
To promote competitive conditions, the

Monetary Board may further limit the equity
investments in QBs of UBs and KBs to forty
percent (40%).
A publicly-listed UB or KB may own
up to 100% of the voting stock of only one
(1) other UB or KB. Otherwise, it shall be
limited to a minority holding.
The existing investment of a bank in
another bank under R.A. No. 7721 shall
be governed by Sec. X121 insofar as it is
consistent with R.A. No. 8791.
The guidelines in determining
compliance with ceilings on equity
investments in financial allied undertakings
are shown in Appendix 79.
(As amended by Circular Nos. 581 dated 14 September 2007;
530 dated 19 May 2006)
Sec. X379 Investments in Venture Capital

Corporations. The following rules and
regulations shall implement Presidential
Decree No. 1688 entitled Authorizing
Banks to Invest in the Equity of Venture
Capital Corporations to Assist Small and
Medium- Scale Enterprises.
For purposes of this Section, a VCC
shall refer to an entity organized jointly
by private banks, the National
Development Corporation and the
Technology Livelihood and Resource
Center and/or such other government
agency as may be authorized by the
appropriate authority, the primary
purpose of which is to develop, promote
and assist, thru debt or equity financing
or any other means, any small and
medium-scale enterprise in the country.
equity and of the total equity of a VCC. A

bank shall not be allowed to invest in the
equity of more than one VCC;
c. The initial paid-in capital of VCC
shall not exceed P5.0 million. Any
subsequent increase in paid-in capital of
the VCC in which a bank owns equity shall
be subject to prior approval of the
Monetary Board;
d. Loans which the investor-bank may
grant to a VCC shall be limited to such
amounts as would enable the VCC to
promote equity financing to viable small
and medium scale enterprise: Provided,
however, That unless otherwise authorized
by the Monetary Board, the aggregate
outstanding loans of such bank to a VCC
shall not exceed twice the amount of its
equity investment in the VCC: Provided,
further, That loans to the VCC, or the small
and medium-scale enterprises shall not be
subject to the ceilings on DOSRI, except
where bank DOSRI are likewise
stockholders in the VCC or in the small
and medium-scale enterprise;
e. The combined equity investments
in, and loans of, the bank to its VCC shall
not exceed fifteen percent (15%) of the
banks net worth; and
f. The aggregate investments in
equities by a bank, including equity
investments in a VCC, shall not exceed the
prescribed ceilings under Sec. X383 on
other limitations and restrictions.
investments in a VCC are shown in
Appendix 79.
X379.1 Requirements for investors

Banks may invest in a VCC organized to
assist small and medium-scale enterprises,
a. The bank shall have a minimum
capital of P100.0 million as defined in Sec.
X106;
b. Two (2) or more banks may own
up to sixty percent (60%) of the total voting
Part III - Page 60
X379.2 Equity investments of

venture capital corporations. Equity
investment of a VCC in small and mediumscale enterprises shall be subject to the
a. Equity financing by a VCC may be
extended to a small and medium-scale
enterprise engaged in an industry certified
X379.2 - X380
07.12.31
as desirable by the Department of Trade

and Industry; and
b. The total assets of the enterprises
shall not exceed P4.0 million, including
the VCCs equity investment. Should the
total assets of the small and medium-scale
enterprise subsequently exceed the
prescribed P4.0 million maximum, the
VCC equity investment therein made
before the total assets of the enterprise
exceeded P4.0 million, may be maintained
but shall not be increased.
X379.3 Business name of venture
capital corporations. A VCC shall be
known by any name not otherwise
appropriated: Provided, however, That the
words "venture capital corporation are
made a part thereof.
X379.4 Reportorial requirements;
examination by Bangko Sentral. A VCC
in which a bank owns equity shall be
subject to BSP reportorial requirements
prescribed for non-bank financial
intermediaries and may be subject to
examination by the BSP.
X379.5 Interlocking directorships
and/or officerships. Subject to prior
approval of the Monetary Board, a person
may concurrently hold the position of a
director or officer in a bank and a VCC.
Sec. X380
Non-Financial Allied
Undertakings. A bank may acquire up to
100% of the equity of a non-financial allied
undertaking: Provided, That the equity
investment of a TB/RB in any single
enterprise shall remain less than fifty
percent (50%) of the voting shares in that
enterprise: Provided, further, That prior
Monetary Board approval is required if the
investment is in excess of forty percent
(40%) of the total voting stock of such
allied undertaking.
The determination of whether the

corporation is engaged in a non-financial
allied undertaking shall be based on the
primary purpose as stated in its articles of
incorporation and the volume of its
principal business.
a. UBs/KBs/TBs
UBs/KBs and TBs may invest in equities
of the following non-financial allied
undertakings:
(1) Warehousing companies;
(2) Storage companies;
(3) Safe deposit box companies;
(4) Companies primarily engaged in
the management of mutual funds but not
in the mutual funds themselves;
(5) Management
corporations
engaged or to be engaged in an activity
similar to the management of mutual funds;
(6) Companies engaged in providing
computer services;
(7) Insurance agencies/brokerages;
(8) Companies engaged in home
building and home development;
(9) Companies providing drying and/
or milling facilities for agricultural crops
such as rice and corn;
(10) Service bureaus, organized to
perform for and in behalf of banks and
NBFIs the services allowed to be
outsourced enumerated in Sec. X169:
Provided, That data processing companies
may be allowed to invest up to forty percent
(40%) in the equity of service bureaus;
(11) Philippine Clearing House
Corporation (PCHC), Philippine Central
Depository, Inc. and Fixed Income
Exchange; and
(12) Such other similar activities as the
Monetary Board may declare as nonfinancial allied undertakings of banks.
UBs may further invest in health
maintenance organizations (HMOs).
In addition, TBs may also invest in the
equities of companies enumerated in Item
b of this Section.
Part III - Page 61
X380 - 1381.2
07.12.31
b. RBs/Coop Banks
RBs/Coop Banks may invest, as a nonfinancial undertaking, in the equities of
companies engaged in the following:
(1) Warehousing and other postharvest facilities;
(2) Fertilizer and agricultural chemical
and pesticides distribution;
(3) Farm equipment distribution;
(4) Trucking and transportation of
agricultural products;
(5) Marketing of agricultural products;
(6) Leasing;
(7) Automated Teller Machine (ATM)
networks; and
(8) Other undertakings as may be
investments in non-financial allied
undertakings are shown in Appendix 79.
(As amended by Circular Nos.581 dated 14 September 2007
and 563 dated 16 March 2007)

Sec. 1381 Investments in Non-Allied or
Non-Related Undertakings. Only UBs may
invest in the equity of an enterprise engaged
in non-allied or non-related activities.
investments in non-allied or non-related
undertakings are shown in Appendix 79.
1381.1 Non-allied undertakings

eligible for investment by universal banks
The broad category of non-allied
undertakings in which a UB may invest
directly or through its subsidiary shall
require prior approval of the Monetary
Board: Provided, That individual equity
investments in the following broad
categories shall not require prior Monetary
Board approval, except as may be required
in Subsec. X376.5:
Part III - Page 62
a. Enterprises engaged in physically

productive activities in agriculture, mining
and quarrying, manufacturing, public
utilities, construction, wholesale trade and
community and social services following
the industrial groupings in the Philippine
Standard Industrial Classification (PSIC) as
enumerated in Appendix 22;
b. Industrial park projects and/or
industrial estate developments;
c. Financial and commercial
complex projects (including land
development and buildings constructed
thereon) arising from or in connection with
the Government's privatization program;
and
d. Such other broad categories as the
Monetary Board may declare as
appropriate: Provided, further, That the
bank shall submit within thirty (30)
banking days after the investment, the
following information/documents to the
appropriate department of the SES:
(1) The amount of investment;
(2) The name of investee company; and
(3) The nature of business,
accompanied by such pertinent
documents as articles of incorporation,
articles of partnership or registration
certificate, whichever may be applicable.
1381.2 Limits on investments in
non-allied enterprises
a. The equity investment of a UB, or
of its wholly or majority-owned
subsidiaries, in a single non-allied
enterprise shall not exceed thirty-five
percent (35%) of the total equity in that
enterprise nor shall it exceed thirty-five
percent (35%) of the voting stock in that
enterprise.
compliance with the ceiling prescribed in
the preceding paragraph, (i) the equity
investment of the bank; and (ii) the equity
investment of the banks subsidiaries, shall
be combined.
1381.2 - 1381.3
05.12.31
b. In no case shall the total equity

investments in a single non-allied
enterprise of UBs, NBFIs performing QB
functions and their subsidiaries, whether
or not the parent financial intermediaries
have equity investments in the enterprise,
amount to fifty percent (50%) or more of
the voting stock of that enterprise:
Provided, however, That equity
investments in excess of the ceilings
prescribed herein as of 01 April 1980 may
be maintained but may not be increased
and if reduced, shall not be increased
thereafter beyond the ceiling prescribed
herein.
1381.3 Report on outstanding

equity investments in and outstanding
loans to non-allied enterprises. UBs shall
submit to the appropriate department of the
SES within fifteen (15) banking days, a
report as of June 30 and December 31 of
each year showing the following:
a. Their
outstanding
equity
investments in non-allied enterprises;
b. Outstanding equity investments of
their wholly or majority-owned
subsidiaries in non-allied enterprises;
c. Their outstanding loans to nonallied enterprises in which they have equity
investments;
Part III - Page 62a
1381.3 - X382.3
05.12.31
d. Outstanding loans of their wholly

or majority-owned subsidiaries to nonallied enterprises in which these wholly or
majority-owned subsidiaries have equity
investments; and
e. Their outstanding loans to nonallied enterprises in which their wholly or
majority- owned subsidiaries have equity
investments.
For purposes of this Subsection, a
wholly- owned subsidiary is a corporation
100% of the voting stock of which is owned
by the reporting bank while a majorityowned subsidiary is a corporation more
than fifty percent (50%) but less than 100%
of the voting stock of which is owned by
the reporting bank.
Sec. X382 Investments in Subsidiaries and
Affiliates Abroad. The establishment or
acquisition of subsidiaries or affiliates abroad
shall require prior approval of the BSP.
establish or acquire subsidiaries and affiliates
abroad. The application for such authority
shall be signed by the president of the bank
and shall be accompanied, as a minimum,
by the following information/-documents:
the establishment or acquisition of a
subsidiary or an affiliate abroad;
b. Economic justification for such
establishment, indicating the services to be
offered, the minimum outlay for furniture,
fixture and equipment, rental and other
expenses;
c. A certification that an application
for such establishment has been filed with
the appropriate government agency of the
host country;
d. Organizational set-up of the
proposed banking office showing the
proposed positions and the names,
qualifications and experience of the
proposed manager and other officers; and
e. Certification signed by the president

or the executive vice-president that the bank
has complied with all the requirements
X382.2 Requirements for establishing
subsidiaries or affiliates abroad. In addition
to the standard pre-qualification
requirements for the grant of banking
authorities in Appendix 5, the applicant
bank shall comply with the following:
a. The citizenship, ownership ceilings
and other limitations on voting
stockholdings in banks under existing law
and regulations; and
b. The experience and expertise in
international banking operations with proof
to the effect that:
(1) It must have conducted international
banking for at least three (3) years prior to
the date of application; and
(2) Its international banking operations
must have contributed a substantial portion
to its total earnings.
X382.3 Conditions for approval of
application. The approval of the application
to establish or acquire a subsidiary of an
affiliate abroad shall be subject to the
a. Without prejudice to the
qualification requirements of the country
where the subsidiary or the affiliate is to be
established, the proposed officer(s), at the
time of appointment, must be at least:
(1) Twenty-five (25) years of age;
(2) A college graduate, preferably with
training and experience abroad;
(3) With three (3) years experience in
international banking; and
(4) Must not be disqualified as an officer
under existing regulations.
b. The applicant shall also comply with
the licensing requirements of the host
country and the necessary license to operate
shall be secured from the appropriate
government agency of the host country;
Part III - Page 63
X382.3 - X382.8
05.12.31
c. The
outward
investment
representing initial capital outlay and other
outlays shall be subject to existing
regulations;
d. All dividends earned shall be
inwardly remitted to the Philippines within
reasonable period after the date of payment;
e. The proposed subsidiary or affiliate
shall submit the reports required by the BSP;
f. The proposed subsidiary or affiliate
shall not carry any of the business of a bank
contemplated within the context of the
Philippine banking system;
g. The proposed subsidiary or affiliate
shall not engage in stock trading activity;
h. The applicant shall submit a
certification from the host country that the
duly authorized personnel/examiners of the
BSP will be authorized to examine the
proposed subsidiary or affiliate; and
i. The applicant shall defray the
necessary cost and expenses to be incurred
by the appropriate SED of the BSP in the
examination of the foreign subsidiary.
X382.4 - X382.7 (Reserved)
X382.8 Investment of a bank
subsidiary in a foreign subsidiary. The
investment in a foreign subsidiary by a bank
subsidiary:
a. The investment of a bank subsidiary
in the equity of a subsidiary located abroad
shall be subject to prior BSP approval;
b. The bank subsidiary may invest in a
subsidiary if it meets the following prequalification requirements:
(1) It has complied with the minimum
capital requirement of the host country;
(2) It has booked the required valuation
reserves and other capital adjustments, if
any; and
(3) Its operations in the preceding three
(3) years were profitable; otherwise, the
feasibility study on the proposed subsidiary
Part III - Page 64
should show profits in the first two (2) years

of operations.
c. The application for authority of a
bank subsidiary shall be accompanied by
the following:
(1) Certified true copy of the resolution
authorizing the investment by the board of
directors of the parent bank and the bank
subsidiary;
(2) Feasibility studies on the proposed
subsidiary indicating, among others, the
economic justification, the type of industry
and organizational expenses to be incurred,
including the capital expenditures; and
(3) Proposed organizational structures,
including the proposed officers and their
qualifications.
d. The applicant parent subsidiary
shall comply with the licensing
requirements of the host country and the
necessary license to operate shall be
secured from the appropriate government
agency of the host country;
e. The proposed subsidiary may
invest in another subsidiary with prior
approval of the BSP;
f. Any
outward
investment
representing initial capital and other outlays
shall be subject to existing regulations;
g. At least fifty percent (50%) of the
yearly net profits of the proposed subsidiary
shall be declared and paid as cash
dividends to the parent subsidiary;
h. The proposed subsidiary shall be
subject to (1) the applicable reportorial
requirements such as the submission of
quarterly SOC and SIE; and
(2) the supervision and examination
by the BSP and the cost of such
examination shall be charged against the
grandparent bank; and
i. Any additional funding or advances
of the parent bank in the Philippines to its
subsidiaries abroad or the subsidiary will
require prior BSP approval.
X383 - X388.3
07.12.31
Sec. X383 Other Limitations and

Restrictions. The following limitations and
restrictions shall also apply regarding
equity investments of banks.
a. In any single enterprise. The equity
investments of UBs and KBs in any single
enterprise shall not exceed at any time
twenty-five percent (25%) of the net worth
of the investing banks as defined in Sec.
X106 and Subsec. X121.5.
b. Aggregate limits. The total amount
of investments in equities in all enterprises
shall not exceed the following ratios in
relation to the net worth of the investing bank:
UB
LIMIT: 50%
KB
35%
TB
RB
Coop Bank
25%
25%
25%
c. Exclusion of underwriting exposure

from ceiling. The exposure of a bank with
UB authority arising from the firm
underwriting of equity securities of
enterprises shall not be counted in
determining compliance with the ceilings
prescribed in this Section and Subsec.
X381.2 for a period of two (2) years from
the acquisition of such equity securities.
d. The guidelines in determining
compliance with the other limitations and
restrictions on equity investments of banks

Sec. X385 Sanctions. The following
sanctions shall be imposed for equity
investments made without prior Monetary
Board approval:
a. First Offense - If the investment is
not allowable under existing regulations,
divestment of the investment and
reprimand on officer/director who
recommended/approved the investment.
b. Subsequent Offense On the Bank. If the investment is not
allowable under existing regulations,
divestment of the investment.
On the Director/Officer. Fine of P20,000

for each investment to be imposed on the
members of the board and the executive
officers who recommended/approved the
investment per investment and to be
shouldered personally by the officer/
director: Provided, That if the subsequent
offense is an investment in a non-allied
enterprise, the fine shall be P40,000.
I. (RESERVED)
J . OTHER OPERATIONS
Sec. X388 Purchase of Receivables and
Other Obligations. The following
regulations shall govern the purchase of
receivables and other obligations.
X388.1 Yield on purchase of
receivables. The rate of yield, including
commissions, premiums, fees and other
charges, from the purchase of receivables
and other obligations, regardless of
maturity, that may be charged or received
by banks shall not be subject to any
regulatory ceiling.
X388.2 Purchase of receivables on
a "without recourse" basis. The total
exposure of a bank to a maker of
promissory notes resulting from the
purchase of receivables on a without
recourse basis shall be subject to the SBL
of the bank: Provided, That the bank shall
evaluate the credit worthiness of the maker
of such promissory notes.
X388.3 Purchase of commercial
paper. Before purchasing registered
commercial paper, banks authorized to
engage in quasi-banking functions shall a. Require the issuing entity to
submit a duly certified true copy of its
Certificate of Registration and Authority to
Issue Commercial Paper; and
Part III - Page 65
X388.3 - 1389
08.12.31
b. Ascertain that the registration

number and expiry date indicated in the
commercial paper are the same as those
in the certificate of registration submitted.
Any violation or failure to comply with
the provisions of this Subsection shall
subject the erring bank to suspension or
revocation of its authority to engage in
quasi-banking functions.
X388.4 Reverse repurchase
agreements with Bangko Sentral
Reverse repo agreements with the BSP
shall be governed by Subsec. X601.2.
X388.5 Investment in debt and
readily marketable equity securities. The
govern investment in debt securities and
marketable equity securities.
a. Banks may invest in the following:
(1) Readily marketable bonds and
other debt securities which are of such use
or demand as to make them the subject of
constant dealings in securities markets,
with such frequent quotations of price as
to make the price easily and definitely
ascertainable, and the security easy to
realize upon sale at any time: Provided,
That the bonds and other debt securities
have complied with the new rules on
registration of commercial papers:
Provided, further, That in the case of RBs/
Coop Banks, the bonds and other securities
have been approved by the BSP.
TBs may invest in evidences of
indebtedness which are registered with the
SEC but are not readily marketable
securities: Provided, That these evidences
of indebtedness shall be acquired with
recourse against a bank or a QB.
It shall be the responsibility of the
investing bank to undertake the necessary
investigation to satisfy itself with regard to
the particular security.
(2) Evidences of indebtedness of the
Republic of the Philippines or the BSP, and
Part III - Page 66
any other evidences of indebtedness or

obligations the servicing and repayment
of which are guaranteed by the Republic
of the Philippines.
b. The classification, accounting
procedures, valuation and sales and
transfers of investments in all debt
securities and marketable equity securities
shall be in accordance with the guidelines
in Appendices 33 and 33a.
c. Penalties and sanctions. The
following penalties and sanctions shall be
imposed on FIs and concerned officers found
to violate the provisions of these regulations:
(1) Fines to be imposed on FIs for each
violation, reckoned from the date the
violation was committed up to the date it was
corrected:
(i) P20,000/day for UBs;
(ii) P10,000/day for KBs;
(iii) P2,000/day for TBs; and
(iv) P1,000/day for RBs/Coop Banks.
(2) Sanctions to be imposed on
concerned officers:
(i) First offense reprimand the
officers responsible for the violation; and
(ii) Subsequent offenses suspension
of ninety (90) days without pay for officers
(As amended by Circular Nos. 628 dated 31 October 2008,
626 dated 23 October 2008 and 585 dated 15 October 2007,
M-2007-006 dated 28 February 2007; Circular Nos. 558 dated
22 January 2007, 546 dated 17 November 2006 and 509
dated 01 February 2006)

Sec. 1389 Guidelines on the Investment
of UBs and KBs in Credit-Linked Notes,
Structured Products and Securities
Overlying Securitization Structures. In
line with the policy of encouraging banks
to diversify their investment portfolios and
to foster the development of a market for
new financial products, the BSP has issued
guidelines on the investment of UBs and KBs
in (1) CLNs and similar products (Sec. 1633),
1389 - X394.1
08.12.31
(2) foreign currency denominated

structured products (Secs. 1560 and 1636)
and (3) securities overlying securitization
structures (Sec. 1648).
No prior BSP approval is required to
enter into authorized transactions.
However, it shall be the responsibility of
UBs/KBs to fully comply with appropriate
risk management standards including, as
a minimum, those prescribed under
relevant Sections. The regulatory
requirements enumerated in Appendix 66
shall be fully complied with by UBs/KBs
investing in products allowed under Secs./
Subsecs. 1633, 1560/X116.8 and X116.9.
The guidelines on the accounting for
investments in CLNs and other SPs, in
addition to those prescribed under PAS 39,
is provided in Appendix 66a.

K. MISCELLANEOUS PROVISIONS
Sec. X393 Loans-to-Deposits Ratio. The
following policies and guidelines shall
govern the loans-to-deposits ratio (LDR) of
head offices and branches.
LDR for the banking system is an indicator

of the level of bank deposits which have
been transformed into investments in a
region. The latter may be used by banks
as a benchmark in assessing their regional
lending and deposit operations as against
that of the industry and their peer group.
X393.3 Computation of the regional

loans-to-deposits ratio. The individual
banks regional LDR shall be computed by
dividing a banks aggregate loans by its
aggregate deposit liabilities on a per region
basis as of the same reporting cut-off date. A
bank, in computing its regional LDR, shall
be guided by the following:
a. Loans shall be reported by a bank in the
region where the loan proceeds were utilized
or channeled to, i.e., location of the end-users.
b. Deposits, on the other hand, shall be
reported by a bank in the region wherein
these were generated.
For purposes of this Section, loans shall
refer to the amortized cost of a banks total
loan portfolio, excluding Loans to BSP,
Interbank Loans Receivable and loans
granted by a banks FCDU/EFCDU.
Deposits, on the other hand, shall refer to
a banks total deposit liabilities, excluding
FCDU/EFCDU deposits.
X393.4 Lagged computation. (Deleted

by Circular No. 613 dated 18 June 2008)
X393.1 Statement of policy. It is the

policy of the BSP to promote healthy
competition within the banking system as
well as provide enhanced banking statistics
necessary for informed decision-making.
X393.2 Regional loans-to-deposits

ratio. An individual banks regional LDR
is a measure of the extent of its lending
activity vis--vis deposits generated in a
region. On an aggregate basis, the regional
X393.5 Real and other properties

acquired as part of compliance. (Deleted by
Circular No. 613 dated 18 June 2008)
Sec. X394 Acquired Assets in Settlement

of Loans. The following rules shall govern
assets acquired in settlement of loans.
X394.1 Posting. Banks shall post at
all times in a conspicuous place in the
premises of their head office and each of
Part III - Page 67
X394.1 - X394.2
07.12.31
their branches and other banking offices a

list of acquired assets together with the
corresponding lowest price at which the
bank is willing to sell such property.
However, this requirement shall not
relieve the bank from the requirement
under Section 52 of R.A. No. 8791 to
dispose of such acquired assets.
X394.2 Booking
a. ROPA in settlement of loans
through foreclosure or dation in payment
shall be booked under the ROPA account
as follows:
(1) Upon entry of judgment in case of
judicial foreclosure;
(2) Upon execution of the Sheriffs
Certificate of Sale in case of extrajudicial
foreclosure; and
(3) Upon notarization of the Deed of
Dacion in case of dation in payment
(dacion en pago).
ROPA shall be booked initially at the
carrying amount of the loan (i.e.,
outstanding loan balance adjusted for any
unamortized premium or discount less
allowance for credit losses computed
based on PAS 39 provisioning
requirements, which take into account the
fair value of the collateral) plus booked
accrued interest less allowance for credit
losses (computed based on PAS 39
provisioning requirements) plus transaction
costs incurred upon acquisition (such as
non-refundable capital gains tax and
documentary stamp tax paid in connection
with the foreclosure/purchase of the
acquired real estate property): Provided,
That if the carrying amount of ROPA
exceeds P5.0 million, the appraisal of the
foreclosed/purchased asset shall be
conducted by an independent appraiser
acceptable to the BSP.
b. The carrying amount of ROPA shall
be allocated to land, building, other
non-financial assets and financial assets
(e.g., receivables from third party or equity
interest in an entity) based on their fair
Part III - Page 68
values, which allocated carrying amounts

shall become their initial costs.
c. The non-financial assets portion of
ROPA shall remain in ROPA and shall be
accounted for as follows:
(1) Land and buildings shall be
accounted for using the cost model under
PAS 40 Investment Property;
(2) Other non-financial assets shall be
accounted for using the cost model under
PAS 16 Property Plant and Equipment;
(3) Buildings and other non-financial
assets shall be depreciated over the
remaining useful life of the assets, which
shall not exceed ten (10) years and three
(3) years from the date of acquisition,
respectively; and
(4) Land, buildings and other
non-financial assets shall be subject to the
impairment provisions of PAS 36
Impairment.
d. Financial assets, shall be
reclassified and booked according to
intention under HFT, DFVPL, AFS, HTM,
INMES, Unquoted Debt Securities
Classified as Loans or Loans and
Receivable and accounted for in
accordance with the provisions of PAS 39,
except interests in subsidiaries, associates
and joint ventures, which shall be booked
under Equity Investments in Subsidiaries,
Associates and Joint Ventures and accounted
for in accordance with the provisions of PAS
27, 28 and 31, respectively.
e. ROPAs that comply with the
provisions of PFRS 5 Non-Current Assets
Held for Sale shall be reclassified and
accounted for as such.
f. Claims arising from deficiency
judgments rendered in connection with
the foreclosure of mortgaged properties
shall be lodged under the real account
Deficiency Judgment Receivable; while
probable claims against the borrower
arising from the foreclosure of mortgaged
properties shall be lodged under the
contingent account Deficiency Claims
Receivable.
X394.2 - X394.3
07.12.31
g. Appraisal of properties. Before

foreclosing or acquiring any property in
settlement of loans, it must be properly
appraised to determine its true economic
value. If the amount of ROPA to be booked
exceeds P5.0 million, the appraisal must
be conducted by an independent appraiser
acceptable to the BSP. An in-house
appraisal of all ROPAs shall be made at
least every other year: Provided, That
immediate re-appraisal shall be conducted
on ROPAs which materially decline in value.
h. Non-cash payment for interest. FIs
that accept non-cash payments for interest
on their borrowers loans shall book the
acquired assets as ROPA. The amount to
be booked as ROPA shall be the booked
accrued interest less allowance for credit
losses (computed based on PAS 39
provisioning requirements): Provided, That
if the carrying amount of ROPA exceeds
P5.0 million, the appraisal of the
foreclosed/purchased asset shall be
conducted by an independent appraiser
acceptable to the BSP. The carrying
amount of ROPA shall be allocated in
accordance with Item b and shall be
subsequently accounted for in accordance
with Item c of this Subsection.
The provisions of this Subsection shall
be applied retroactively to all outstanding
ROPAs and sales contract receivables:
Provided: That for properties acquired
before 1 January 2005, the carrying amount
of the acquired properties when initially
booked under ROPA shall be the cost
subject to depreciation and impairment
testing, which shall be reckoned from the
time of acquisition.
(As amended by Circular Nos. 555 dated 12 January 2007 and
520 dated 20 March 2006)
X394.3 Sales contract receivable

a. Sales Contract Receivable (SCR)
shall be recorded based on the present
value of the installments receivables
discounted at the imputed rate of interest.
Discount shall be accreted over the life of
the SCR by crediting interest income using

the effective interest method. Any
difference between the present value of
the SCR and the derecognized assets shall
be recognized in profit or loss at the date
of sale in accordance with the provisions
of PAS 18 Revenue: Provided,
furthermore, That SCR shall be subject to
impairment provision of PAS 39.
The provisions of this Subsection shall
be applied retroactively to all outstanding
ROPAs and SCRs: Provided: That for
properties acquired before 1 January 2005,
the carrying amount of the acquired
properties when initially booked under
ROPA shall be the cost subject to
depreciation and impairment testing,
which shall be reckoned from the time of
acquisition.
b. SCRs which meet all the
requirements/conditions enumerated
below are hereby considered performing
assets and therefore, not subject to
classification:
(1) That there has been a downpayment of at least twenty percent (20%)
of the agreed selling price or in the
absence thereof, the installment
payments on the principal had already
amounted to at least twenty percent
(20%) of the agreed selling price;
(2) That payment of the principal must
be in equal installments or in diminishing
amounts and with maximum intervals of
one (1) year;
(3) That any grace period in the
payment of principal shall not be more than
two (2) years; and
(4) That there is no installment payment
in arrear either on principal or interest:
Provided, That an SCR account shall be
automatically classified Substandard and
considered non-performing in case of
non-payment of any amortization due:
Provided, further, That an SCR which has
been classified Substandard and considered
non-performing due to non-payment of any
amortization due may only be upgraded/
Part III - Page 69
X394.3 - X394.15
08.12.31
restored to unclassified and/or performing

status after a satisfactory track record of at
least three (3) consecutive payments of the
required amortization of principal and/or
interest has been established.
X394.4 - X394.9 (Reserved)

X394.10
Transfer/sale
of
non-performing assets to a special
purpose vehicle or to an individual. The
procedures governing the transfer/sale of
non-performing assets (NPAs) to a Special
Purpose Vehicle (SPV) or to an individual
that involves a single family residential
unit, or transactions involving dacion en
pago by the borrower or third party of an
NPL, for the purpose of obtaining the
Certificate of Eligibility (COE) which is
required to avail of the incentives provided
under R.A. No. 9182 are presented in
Appendix 56.
The accounting guidelines on the sale
of NPAs to SPVs and to qualified
individuals for housing under the SPV Act
of 2002 are presented in Appendix 56a.
The significant timelines related to the
implementation of R.A. No. 9182, also
known as the "Special Purpose Vehicle
Act" as amended by R.A. No. 9343 are
presented in Appendix 56b.
(As amended by M-2008-014 dated 17 March 2008, M-2008-005
dated 04 February 2008, M-2007-013 dated 11 May 2007 and
M-2006-001 dated 11 May 2006)
X394.11 - X394.14 (Reserved)

X394.15 Joint venture of banks
with real estate development companies
a. Statement of policy. It is the policy
of the BSP to encourage banks to dispose
of their ROPAs in settlement of loans and
other advances either through foreclosure
or dacion en pago as well as other
properties acquired as a consequence of a
Part III - Page 70
merger/consolidation which are no longer

necessary for their banking operations.
Towards this end, banks are hereby
authorized to enter into Joint Venture
Agreements (JVA) with real estate
development companies for the
development of said properties, subject to
the requirements prescribed under this
Subsection.
b. For purposes of this Subsection,
joint venture shall refer to a contractual
arrangement/undertaking between a bank
and a duly registered real estate
development company (developer) for the
purpose
of
developing
the
abovementioned properties of the bank.
The bank contributes said properties to the
undertaking while the developer
contributes all the development funds,
resources, technical expertise, equipment,
personnel and all other requirements
desired or needed for the implementation
and completion of the undertaking
including marketing, where applicable.
The bank and the developer shall be bound
by the contract that establishes joint control
of the undertaking. Although the
developer may be designated as operator
or manager of the undertaking, it does not,
however, absolutely control the
undertaking but only acts in accordance
with the authorities granted to him under
the JVA.
c. Forms of a joint venture. A bank
and a developer may undertake a joint
venture under the following forms:
(1) A jointly-controlled operation/
undertaking, which does not involve the
establishment of a corporation, partnership
or other entity, or a financial structure that
is separate from the bank and the
developer themselves. Under this form
of joint venture, the rights and obligations
of the bank and the developer shall be
governed primarily by their contract that
must clearly specify the following:
X394.15
06.12.31
(a) authority of the developer to

develop/subdivide the property and
subsequently, to sell the individual lots
under a special power of attorney;
(b) sharing in the sales proceeds of the
developed ROPAs or in the developed
lots;
(c) sharing in taxes;
(d) sharing in the assets of the joint
venture particularly in the developed/
subdivided lots should there still be unsold
lots at the time of termination of the joint
venture; and
(e) name under which the subdivided
lots shall be registered pending their sale.
(2) A jointly-controlled entity, which
involves the establishment of a new
juridical entity, preferably a corporation
that is separate and distinct from the bank
and the developer. A jointly controlled
corporation may be established either for
the purpose of developing properties of
banks for immediate sale or converting
them into earning assets such as hotels and
shopping malls.
d. Requirements and limitations in a
joint venture. A bank desiring to enter into
a JVA with a developer for the purpose of
developing its ROPAs and/or other
properties acquired as a consequence of
merger/consolidation shall comply with the
following:
(1) The JVA shall be approved by the
board of directors of the bank.
(2) The banks contribution to the joint
venture, in whatever form undertaken,
shall be limited to ROPAs and properties
acquired as a consequence of the banks
merger/consolidation with another bank/
financial institution.
(3) The bank shall not recognize
income out of its contribution to the joint
venture, regardless of the agreed valuation
of said properties.
(4) The bank shall not provide funds
to the joint venture either as a loan or
capital contribution.
(5) The JVA or contractual

arrangement shall clearly stipulate the
rights and obligations of the bank and the
developer.
(6) The bank shall secure prior
Monetary Board approval of the JVA.
e. Application for authority to enter
into JVA. A bank desiring to enter into a
JVA with a developer for the purpose of
developing its ROPAs and other
its merger/consolidation with another
bank/FI shall secure prior Monetary Board
approval of said agreement. For that
purpose, the concerned bank shall submit
an application for Monetary Board
approval to the appropriate department of
the SES. The application shall be signed
by the banks president or officer of
equivalent rank and shall be accompanied
by the following documents/information:
(1) The name of the developer;
(2) Name of the principal
stockholders and officers as well as
members of the board of directors of said
company;
(3) Relationship of the bank with the
developer, if any;
(4) List and brief description of the
properties to be contributed by the bank
including their market values, book
values and the valuation agreed upon
under the proposed JVA;
(5) Certification by the banks
president or officer of equivalent rank that
the JVA is strictly in compliance or will
strictly comply with the requirements of
this Subsection; and
(6) Such
other
documents/
information that the concerned
department of the SES may require.
f. Non-financial allied undertaking.
All types of banks are hereby authorized
to invest in the equities of companies
engaged in real estate development as a
non-financial allied undertaking, subject
Part III - Page 71
X394.15 - X395
06.12.31
(1) Investments shall be limited to

ROPAs and other properties acquired as a
consequence of a banks merger/
consolidation with another bank/FI;
(2) Investments shall be subject to
existing BSP requirements applicable to
investments in non-financial allied
undertakings; and
(3) If there is already an existing
subsidiary or affiliate relationship between
the bank and the investee corporation prior
to the investment, the bank shall not
recognize income out of its invested
properties. The excess of the value of the
capital stock received by the bank over the
book value of its invested properties shall
be booked as Deferred Credits.
g. Accounting treatment. Accounting
treatment of the properties contributed by
a bank to a joint venture or invested in the
equities of developers.
(1) In a joint venture in the form of a
jointly controlled operations/undertaking,
which does not involve the establishment
of a corporation or other entity, the bank
shall continue to recognize in its books the
properties contributed to the undertaking.
However, the regular provisioning against
probable losses required under existing
regulations may be discontinued upon
execution and implementation of the JVA.
(2) In a joint venture in which a
corporation is created, the bank shall book
the properties contributed to the undertaking
as investment pursuant to the provisions of
PAS 31. It shall also recognize its interest
in the corporation using the proportionate
consolidation method or the equity method
as long as it continues to have joint control
over the corporation: Provided, That the
bank shall not recognize income out of its
contribution to the joint venture. The
excess of the value of the capital stock
received by the bank over the book value
of the contributed properties shall be
credited to the account Deferred Credits.
Part III - Page 72
(3) Properties invested in equities of

developers shall be booked in accordance
with the PAS: Provided, That the bank
shall not recognize income out of the
properties invested if there is already an
existing subsidiary or affiliate relationship
between the bank and the investee
corporation prior to the investment,
regardless of the agreed valuation of said
properties. The excess of the agreed
valuation of said properties over their
book value shall be booked as Deferred
Credits.
h. Coverage. The provisions of this
Subsection shall apply to ROPAs existing,
as well as those which may be acquired
by banks in settlement of non-performing
or past due loans and advances
outstanding, as of 09 March 2006 and to
merger or consolidation which are
outstanding in the books of banks as of
said date.
i. Sanctions. Any violation of the
provisions of this Subsection and/or any
misrepresentation in the certification and
information required to be submitted to
the BSP under this Subsection shall subject
the bank and the officer or officers
responsible therefore, to the penalties
provided under Sections 35, 36 and 37 of
R. A. No. 7653.
Sec. X395 Credit Policies of

Government-Owned Corporations
Government-owned corporations which
perform banking or credit functions shall
coordinate their general credit policies
with the Schedule of Credit Priorities
embodied in Appendix 23. Within the
provision of their respective charters,
these corporations shall limit their credits
to the economic activities falling under
Priority II of said schedule to fifty percent
(50%) of their outstanding loans at any time.
X396 - 1397
08.12.31
Sec. X396 Parcellary Plans on Crop

Loans. Banks shall require the submission
of parcellary plans a requisite for granting
crop loans to sugarcane planters.
Sec. 1397 Limits on Real Estate Loans of
UBs/KBs. Total real estate loans of UB/
KBs, excluding:
a. Loans extended to individual
households for purposes of financing the
acquisition, construction, and/or
improvement of housing units and
acquisition of any associated land that is
or will be occupied by the borrower,
regardless of amount;
b. Loans extended to land
developers/construction companies for
the purpose of development and/or
construction of socialized and low-cost
residential properties as defined under
existing guidelines of the HUDCC for the
implementation of government housing
programs, which are intended for sale to
individual households;
c. Loans to the extent guaranteed by
the HGC; and
d. Loans to the extent collateralized
by non-risk assets under existing regulations
shall not exceed twenty percent (20%) of
the total loan portfolio, net of interbank
loans.
For this purpose, real estate loans shall
refer to loans granted to:
(1) individual households for the
acquisition,
construction
and/or
improvement of housing units and
acquisition of any associated land that is or
will be occupied by the borrower, including
loans granted to bank officers and
employees for the same purpose which
are covered by banks fringe benefit plan
and which plan was approved by the
Monetary Board; and
(2) land developers/construction

companies and other borrowers for the
acquisition and development of land
and/or construction of buildings and
structures, including housing units for
sale/lease and/or for use in retail/
wholesale, manufacturing or other
income-generating purposes, including
loans for the land development and
construction of residential properties.
It shall not include loans for
construction of highways, streets, bridges,
tunnels, railways, and other infrastructure
for public use.
Purchase by banks of receivables
under Contract to Sell (CTS) executed
between the real estate developers and
home buyers on a with recourse basis shall
be considered loans to real estate
developers and shall be classified as
commercial real estate loans.
Trust departments of UBs/KBs shall be
exempted from the prescribed limit on real
estate loans.
Under existing HUDCC guidelines,
socialized and low-cost housing loans are
defined as follows:
Housing
Package
Loan Ceiling
Low-cost
Level 1-A
(Socialized)
P300,000 and below
Level 1-B
Above P300,000
to P500,000
Level 2
Above P500,000
to P1,250,000
Level 3
Above P1,250,000 to
P3,000,000
Part III - Page 73
2397 - X399
05.12.31

Sec. X398 Debt Service Limit on Local
Government Borrowings. To ensure the
effective implementation of the debt
service limit on local government
borrowings as stipulated in Section 324 (b)
of the Local Government Code of 1991,
all banks shall require each borrowing LGU
to present a certificate of its debt service
and borrowing capacity, duly certified by
Part III - Page 74
the Bureau of Local Government Finance

Department of Finance (BLGF-DOF).
Sanctions. Any violation of the provisions
and 37 of R.A. No. 7653.
with sanctions falling under Section 37
of R. A. No. 7653 on banks, their
directors and/or officers are shown in
Appendix 67.
X401 - X403
08.12.31
PART FOUR
TRUST, OTHER FIDUCIARY BUSINESS AND INVESTMENT
MANAGEMENT ACTIVITIES
Section X401 Statement of Principles
The cardinal principle common to all trust
and other fiduciary relationships is fidelity.
Policies predicated upon this principle are
directed towards confidentiality, scrupulous
care, safety and prudent management of
property including reasonable probability of
income with proper accounting and
appropriate reporting thereon. Practices are
designed in accordance with the basic
standards for trust, other fiduciary and investment
management accounts in Appendix 83 to
promote efficiency in administration and
operation; to adhere and conform to the terms
of the instrument or contract; and to maintain
absolute separation of property free from any
intrusion of conflict of interest.
A bank authorized to engage in trust and
fiduciary business is under no obligation,
either legal or moral, to accept any such
business being offered nor has it the right to
accept if the same is contrary to law, rules,
regulations, public order and public policy.
It shall advertise its services in a dignified
manner and enter such business only when
demand for such service is evident, when
specially equipped to render such service
and upon full appreciation of the
responsibilities involved. It shall be ready and
willing to give full disclosure of the services
being offered and shall conduct its dealing
with transparency. Harmonious relationship
shall likewise be pursued with other
professions to achieve the common goal of
mutual service to the public and protection
of its interest.
Banks may not receive or hold as trustee,
agent, administrator, financial manager, or
other similar capacity, any fund or money
from the Government and government entities:
Provided, however, That government-owned
banks may receive or hold as trustee, agent,
administrator, financial manager, or other

similar capacity, the following:
a. Funds of local government units
(LGUs) which are expected to be available
for investment purposes for a relatively long
period of time: Provided, further, That the
amounts held in trust or otherwise managed/
advised for and in behalf of the LGUs shall
be invested only in government securities,
specifically, evidences of indebtedness of the
National Government, the BSP and other
evidences of indebtedness or obligations of
government entities, the servicing and
repayment of which are fully guaranteed by
the National Government; and
b. Funds of government and government
entities which are authorized by special laws
to be placed in trust.
Sec. X402 Scope of Regulations. These

regulations shall govern the grant of authority
to and the management, administration and
conduct of trust, other fiduciary business and
investment management activities (as these
terms are defined in Sec. X403) of banks.
The regulations are divided into three
(3) Sub-Parts where:
A. Trust and Other Fiduciary Business
shall apply to banks authorized to engage in
trust and other fiduciary business including
investment management activities;
B. Investment Management Activities
shall apply to banks without trust authority
but with authority to engage in investment
management activities; and
C. General Provisions shall apply to both.
Sec. X403 Definitions. For purposes of
regulating the operations of trust and other
fiduciary business and investment management
activities, unless the context clearly connotes
Part IV - Page 1
X403
05.12.31
otherwise, the following shall have the

meaning indicated.
a. Trust business shall refer to any
activity resulting from a trustor-trustee
relationship (trusteeship) involving the
appointment of a trustee by a trustor for
the administration, holding, management
of funds and/or properties of the trustor
by the trustee for the use, benefit or
advantage of the trustor or of others
called beneficiaries.
b. Other fiduciary business shall refer
to any activity of a trust-licensed bank
resulting from a contract or agreement
whereby the bank binds itself to render
services or to act in a representative capacity
such as in an agency, guardianship,
administratorship of wills, properties and
estates, executorship, receivership, and other
similar services which do not create or result
in a trusteeship. It shall exclude collecting
or paying agency arrangements and similar
fiduciary services which are inherent in the
use of the facilities of the other operating
departments of said bank. Investment
management activities, which are
considered as among other fiduciary
business, shall be separately defined in the
succeeding item to highlight its being a major
source of fiduciary business.
c. Investment management activity
shall refer to any activity resulting from a
contract or agreement primarily for
financial return whereby the bank (the
investment manager) binds itself to handle
or manage investible funds or any
investment portfolio in a representative
capacity as financial or managing agent,
adviser, consultant or administrator of
financial or investment management,
advisory, consultancy or any similar
arrangement which does not create or
result in a trusteeship.
d. Trust is a relationship or an
arrangement whereby a person called a
trustee is appointed by a person called a
trustor to administer, hold and manage
Part IV - Page 2
funds and/or property of the trust or for the

benefit of a beneficiary.
e. Trust agreement is an instrument
in writing covering the terms and
conditions of the trust.
f. Trustee is any person who holds legal
title to the funds and/or property of a trust.
g. Trustor is any person who creates a trust.
h. Beneficiary is any person for
whose benefit a trust is created.
i. Fiduciary shall refer to any person
or entity engaged in any of the other
fiduciary business as herein defined where
no trustor-trustee relation exists.
j. Agency shall refer to a contract
whereby a person binds himself to render
some service or to do something in
representation or on behalf of another, with
the consent or authority of the latter.
k. Principal shall refer to the person
who grants authority to another person called
an agent, under a contract to enter into
transactions in his behalf.
l. Agent shall refer to a person who
acts in representation or on behalf of another
with the latters authority.
m. Trust department shall refer to
the department, office, unit, group,
division or any aggrupation which carries
out the trust and other fiduciary business
of a bank.
n. Trust officer shall refer to the
designated head or officer-in-charge of the
trust department.
o. Trust account shall refer to an
account where transactions arising from a
trusteeship are kept and recorded.
p. Common trust fund (CTF) shall refer
to a fund maintained by a bank authorized
to perform trust functions under a written
and formally established plan, exclusively
for the collective investment and
reinvestment of certain money
representing participation in the plan
received by it in its capacity as the trustee.
q. Fiduciary account shall refer to an
account where transactions arising from any
X403 - X404.2
05.12.31
of the other fiduciary businesses are kept

and recorded.
r. Investment Manager shall refer to any
person or entity engaged in investment
management activities as herein defined.
s. Investment Management Department
shall refer to the department, unit, group,
division or any aggrupation which carries
out the investment management activities
of a bank that does not have an authority
to engage in trust and other fiduciary
business.
t. Investment Management Officer
shall refer to the designated head or officerin-charge of the investment management
department of a bank which does not have
the authority to engage in trust and other
fiduciary business.
u. Investment management account
shall refer to an account where transactions
arising from investment management
activities are kept and recorded.
A. TRUST AND OTHER
FIDUCIARY BUSINESS
Sec. X404 Authority to Perform Trust and
Other Fiduciary Business. With prior
approval of the Monetary Board, banks may
engage in trust and other fiduciary business
under Chapter VII of R.A. No. 337, as
amended.
If a bank is found to engage in
unauthorized trust and other fiduciary
business and/or investment management
activities, whether as its primary, secondary
or incidental business, the Monetary Board
may impose administrative sanctions against
such bank or its principal officers and/or
majority stockholders or proceed against
them in accordance with law.
The Monetary Board may take such
action as it may deem proper such as, but
may not be limited to, requiring the transfer
or turnover of any trust and other fiduciary
and/or investment management account to
duly incorporated and licensed entities of
the choice of the trustor, beneficiary or client,

as the case may be.
No bank shall advertise or represent
itself as being engaged in trust and other
fiduciary business or in investment
management activities or represent itself as
trustee or investment manager or use words
of similar import; and/or use in connection
with its business title the words trust, trust
corporation, trust company, trust plan or
words of similar import, without having
obtained the required authority to do so.
perform trust and other fiduciary
business. Banks desiring to perform trust
and other fiduciary business shall file an
application with the appropriate supervising
and examining department. The application
shall be signed by the banks president or
officer of equivalent rank and shall be
of the institutions board of directors
authorizing the application; and
b. A certification signed by the president
or the officer of equivalent rank that the
institution has complied with all conditions/
prerequisites for the grant of authority to
perform trust and other fiduciary business.
X404.2 Required capital. Banks
applying for authority to perform trust and
other fiduciary business must have minimum
capital accounts as follows:
UBs/KBs. The amount required under
Sec. X106 or such amount as may be
required by the Monetary Board in the future.
Branches of foreign banks. The amount
required under Sec. X121 or such amount
as may be required by the Monetary Board
in the future.
TBs. P650.0 million or such amounts
as may be required by the Monetary Board
in the future.
Banks authorized to perform and are
actually performing trust and other fiduciary
Part IV - Page 3
X404.2 - X404.3
05.12.31
business prior to 20 August 2002 whose

capital accounts are lower than the aboveprescribed minimum capital accounts shall,
before declaring any dividend, carry to
surplus at least fifty percent (50%) of their net
income from all operations since the last
preceding dividend until such time that their
capital accounts meet the above requirement.
X404.3 Prerequisites for engaging
in trust and other fiduciary business
Before it may engage in trust and other
fiduciary business, a bank shall comply with
a. The applicant has been duly
licensed or incorporated as a bank or created
as such by special law or charter;
b. The articles of incorporation or
governing charter of the institution shall
include among its powers or purposes,
acting as trustee or administering any trust
or holding property in trust or on deposit
for the use, or in behalf of others;
c. The by-laws of the institution shall
include among other things, provisions on
the following;
(1) The organization plan or structure
of the department, office or unit which shall
conduct the trust and other fiduciary
business of the institution;
(2) The creation of a trust committee, the
appointment of a trust officer and subordinate
officers of the trust department; and
(3) A clear definition of the duties and
responsibilities as well as the line and staff
functional relationships of the various units,
officers and staff within the organization;
d. The banks operation during the
e. The bank is well capitalized whose
risk-based capital adequacy ratio is not lower
than twelve percent (12%) at the time of
filing the application;
f. It has not incurred net weekly
reserve deficiencies during the eight (8)-
Part IV - Page 4
week period immediately preceding the date

of application;
g. It has generally complied with
banking laws, rules and regulations, orders
or instructions of the Monetary Board and/
or BSP Management in the last two (2)
preceding examinations prior to the date of
application, particularly on the following:
(1) election of at least two (2)
independent directors;
(2) attendance by every member of the
board of directors in a special seminar for
board of directors conducted or accredited
by the BSP;
(3) the
ceilings
on
credit
(4) liquidity floor requirements for
(5) single borrowers limit; and
(6) investment in bank premises and
other fixed assets;
h. It maintains adequate provisions for
probable losses commensurate to the quality
of its asset portfolio but not lower than the
required valuation reserves as determined
by the BSP;
i. It does not have float items
outstanding for more than sixty (60) calendar
days in the Due From/To Head Office/
Branches/Other Offices accounts and the
Due from Bangko Sentral account
j. It has no past due obligations with
the BSP or with any government financial
institution;
k. It has established a risk
systems, appropriately structured risk
limits, effective internal controls and
complete, timely and efficient risk
reporting system;
l. It has a CAMELS composite rating
of at least 3 in the last regular examination
X404.3 - 2404
07.12.31
with management rating of not lower than

3; and
m. It is a member of the PDIC in good
standing.
Compliance with the foregoing as well
as with other requirements under existing
regulations shall be maintained up to the
time the trust license is granted. A bank
that fails in this respect shall be required to
show compliance for another test period of
the same duration.
A bank authorized to engage in trust and
other fiduciary business shall, before
engaging in actual operations, submit to the
BSP the following:
a. Government securities acceptable
to the BSP amounting to P500,000 as
minimum basic security deposit for the
faithful performance of trust and other
fiduciary duties required under Subsec.
X405.1;
b. Organization chart of the trust
department which shall carry out the trust and
other fiduciary business of the bank; and
c. Names and positions of
individuals designated as chairman and
members of the trust committee, trust
officer and other subordinate officers of
the trust department with their respective
bio-data and statement of duties and
responsibilities.
Sec. 2404 Grant of Authority to Engage
in Limited Trust Business to Thrift Banks
a. Statement of policy. It is hereby
declared the policy of the BSP to promote
healthy competition in order to improve
the delivery of banking services especially
in the countryside. Towards this end,
authority to engage in limited trust business
shall be granted to qualified TBs which
meet the minimum capital required for the
grant of such authority, among others.
b. Scope of limited trust business

Limited trust business shall be confined to:
(1) court trusts or trusts under orders
of court of competent jurisdiction, such as
acting as:
(a) executor or administrator of a will;
and
(b) guardian of the estate of a minor or
incompetent; and
(2) administration of properties.
c. Application for authority to engage
in limited trust business. A TB desiring to
engage in a limited trust business shall file
an application with the Centralized
Application and Licensing Group (CALG)
of the SES. The application shall be signed
by the bank president or officer of
equivalent rank and shall be accompanied
by the following documents:
the application; and
(2) Certification signed by the bank
the bank has complied with all the conditions/
pre-requisites for the grant of authority to
engage in a limited trust business.
d. Required capital. A TB applying for
authority to engage in limited trust business
must have minimum capital accounts
under existing regulations or P100.0
million, whichever is higher, or such
amounts as may be required by the
Monetary Board in the future.
e. Pre-requisites for the grant of
authority to engage in limited trust
business. A TB applying for authority to
engage in limited trust business must
(1) The banks operation during the
(2) The bank is well capitalized whose
risk-based CAR is not lower than twelve
percent (12%) at the time of filing the
application;
Part IV - Page 5
2404
07.12.31
(3) It has not incurred net weekly

application;
(4) It has generally complied with
preceding examinations prior to the date
of application, more particularly:
(a) election of at least two (2)
(b) attendance by every member of the
by the BSP;
(c) the
ceilings
on
credit
(d) liquidity floor requirements for
(e) SBL; and
(f) investment in bank premises and
other fixed assets;
(5) It maintains adequate provisions
for probable losses commensurate to the
(6) It does not have float items
(8) It has established a risk
reporting system;
(9) It has a CAMELS composite rating
of at least 3 in the last regular
Part IV - Page 6
examination with Management rating not

lower than 3; and
(10) It is a member of the PDIC in good
standing;
f. Requirements for engaging in
limited trust business. A TB authorized to
engage in limited trust business shall
(1) The articles of incorporation of the
bank shall include among its powers or
purposes, acting as trustee or administering
trust or holding property in trust or on
deposit for the use, or in behalf of others;
(2) The by-laws of the bank shall
include among others, provisions on the
following:
(a) The organization plan or structure
business of the bank;
(b) The creation of a trust committee,
to be composed of at least three (3)
members who are all members of the
board of directors and who are not
operating officers of the bank, and at least
two (2) of whom are independent directors:
Provided, That if the bank decides to have
a trust committee composed of at least five
(5) members, the provisions of Subsec.
X406.2 shall apply;
(c) The appointment of a trust officer
and subordinate officers of the trust
department, office or unit: Provided, That
the trust officer shall have the following:
(i) At least two (2) years of actual
experience in trust operations; or
(ii) At least one (1) year of actual
experience in trust operations and
completion of a training program in trust
operations acceptable to the BSP; or
(iii) At least two (2) years of actual
experience as officer of a bank and
operations acceptable to the BSP; and
(d) A clear definition of the duties and
officers and staff within the organization.
2404 - 3404
07.12.31
g. Administration of properties held

in trust. The properties held in trust or other
fiduciary capacity shall be administered in
accordance with the terms of the
instrument creating the trust and/or order
of the court. Unless otherwise directed in
writing by the court, investments of
fiduciary funds shall be limited to:
(1) Bank deposits; and
Republic of the Philippines or of the BSP,
and any other evidences of indebtedness
or obligations the servicing and repayment
of which are fully guaranteed by the
Republic of the Philippines;
h. Applicability of the rules and
regulations on trust, other fiduciary
business and investment management
activities. The provision of this Part which
are not inconsistent with the provisions of
this Section shall apply to TBs authorized
to engage in limited trust business.
Sec. 3404 Grant of Authority to Engage

in Limited Trust Business to Rural Banks
a. Statement of policy. It is hereby
declared the policy of the BSP to promote
healthy competition in order to improve
the delivery of banking services especially
in the countryside. Towards this end,
business shall be granted to qualified RBs
which meet the minimum capital required
for the grant of such authority, among others.
b. Scope of limited trust business
Limited trust business shall be confined to:
(1) court trusts or trusts under orders
of court of competent jurisdiction, such as
acting as:
(a) executor or administrator of a will;
and
(b) guardian of the estate of a minor or
incompetent; and
(2) administration of properties.
c. Application for authority to engage
in limited trust business. An RB desiring
to engage in a limited trust business shall

file an application with the CALG of the
SES. The application shall be signed by the
bank president or officer of equivalent rank
documents:
the application; and
(2) Certification signed by the bank
the bank has complied with all the conditions/
pre-requisites for the grant of authority to
engage in a limited trust business.
d. Required capital. An RB applying
for authority to engage in limited trust
business must have minimum capital
accounts of P100.0 million, or such
amounts as may be required by the
Monetary Board in the future.
e. Pre-requisites for the grant of
business. An RB applying for authority to
engage in limited trust business must
comply with the following requirements;
(1) The banks operation during the
(2) The bank is well capitalized whose
risk-based CAR is not lower than twelve
application;
application;
(4) It has generally complied with
preceding examinations prior to the date
of application, more particularly;
(a) election of at least two (2)
(b) attendance by every member of the
Part IV - Page 6a
3404
07.12.31

by the BSP;
(c) the
ceilings
on
credit
(d) liquidity floor requirements for
(e) SBL; and
(f) investment in bank premises and
other fixed assets;
(5) It maintains adequate provisions for
probable losses commensurate to the
(6) It does not have float items
(8) It has established a risk
reporting system;
(9) It has a CAMELS composite rating of
at least 3 in the last regular examination
with Management rating not lower than 3;
and
(10)It is a member of the PDIC in good
standing.
f. Requirements for engaging in
limited trust business. An RB authorized
to engage in limited trust business shall
(1) The articles of incorporation of
the bank shall include among its powers
or purposes, acting as trustee or
administering trust or holding property
in trust or on deposit for the use, or in
behalf of others;
Part IV - Page 6b
(2) The by-laws of the bank shall

following:
(a) The organization plan or structure
business of the bank;
(b) The creation of a trust committee,
to be composed of at least three (3)
members who are all members of the
board of directors and who are not
operating officers of the bank, and at least
two (2) of whom are independent
directors: Provided, That if the bank
decides to have a trust committee
composed of at least five (5) members,
the provisions of Subsec. X406.2 shall
apply;
(c) The appointment of a trust officer
and subordinate officers of the trust
department, office or unit: Provided, That
the trust officer shall have the following:
(i) At least two (2) years of actual
experience in trust operations; or
(ii) At least one (1) year of actual
experience in trust operations and
operations acceptable to the BSP; or
(iii) At least two (2) years of actual
experience as officer of a bank and
operations acceptable to the BSP; and
(d) A clear definition of the duties and
g. Administration of properties held
in trust. The properties held in trust or other
fiduciary capacity shall be administered in
instrument creating the trust and/or order
of the court. Unless otherwise directed in
writing by the court, investments of
fiduciary funds shall be limited to:
(1) Bank deposits; and
Republic of the Philippines or of the BSP,
3404 - X405.2
07.12.31
or obligations the servicing and repayment

of which are fully guaranteed by the
regulations on trust, other fiduciary business
and investment management activities. The
provision of this Part which are not
inconsistent with the provision of this Section
shall apply to RBs authorized to engage in
limited trust business.
Sec. X405 Security for the Faithful

Performance of Trust and Other
Fiduciary Business
X405.1 Basic security deposit. A
bank authorized to engage in trust and other
fiduciary business shall deposit with the
BSP eligible government securities as
security for the faithful performance of its
trust and other fiduciary duties equivalent
to at least one percent (1%) of the book
value of the total volume of trust, other
fiduciary and investment management
assets: Provided, That at no time shall such
deposit be less than P500,000.
Scripless securities under the
Registry of Scripless Securities (RoSS)
System of the Bureau of Treasury (BTr)
may be used as basic security deposit for
trust and other fiduciary duties using the
Guidelines enumerated in Appendix 34 of
this Manual.
X405.2 Eligible securities. Government
securities which shall be deposited in
compliance with the above basic security
deposit shall consist of:
a. Evidences of indebtedness of the
Republic of the Philippines and of the BSP
and any other evidences of indebtedness or
of the Philippines; and such other kinds of
securities which may be declared eligible
by the Monetary Board: Provided, That
such securities shall be free, unencumbered,

and not utilized for any other purpose:
Provided, further, That such securities shall
have remaining maturity of not more than
three (3) years from the date of deposit with
the BSP; and
b. NDC Agri-Agra ERAP Bonds which
compliance with P.D. No. 717. The
requirement that the securities used shall
have a remaining maturity of not more than
three (3) years shall not apply.
c. Five (5)- and Ten (10)-year SPTBs
to finance the CARP-related expenditures,
provided such bonds shall not be
hypothecated in any way or earmarked for
any other purpose and they meet the three
(3)-year remaining maturity requirement to
ensure that such bonds are liquid.
d. Securities backed by the unreleased
IRAs of LGUs (issued by a Special Purpose
Trust administered by the DBP under the IRA
Monetization Program of the Union of Local
Authorities of the Philippines) the release of
which IRA on scheduled date of payment
has been certified by the DBM as not being
subject to any conditionalities: Provided,
That such securities shall be eligible only to
the extent of the present value of the bond
computed using the original yield to maturity
(as of auction/issue date): Provided, further,
That for reserve for trust and other fiduciary
duties, the remaining maturities of the
securities shall not exceed three (3) years; and
e. Zero Coupon Bond Issue by the HGC
of up to P7.0 billion five (5)-year regular series
and up to P3.0 billion seven (7)-year special
series to finance its guaranty servicing of
socialized and low-cost housing projects:
Provided, That they meet the three (3)-year
remaining maturity requirement to ensure
that such bonds are liquid: Provided, further,
That such bonds shall qualify as eligible
reserve for trust and other fiduciary duties
only to the extent of the present value of
the bond computed using the original yield
to maturity (as of auction/issue date).
Part IV - Page 6c
X405.2 - X405.4
08.12.31
X405.3 Valuation of securities and

basis of computation of the basic security
deposit requirement. For purposes of
determining compliance with the basic
security deposit under this Section, the
amount of securities so deposited shall be
based on their book value, that is, cost as
increased or decreased by the
corresponding discount or premium
amortization.
The base amount for the basic security
deposit shall be the average of the
month-end balances of total trust,
investment management and other
fiduciary assets of the immediately
preceding calendar quarter.
The trustee or fiduciary shall have thirty
(30) calendar days after the end of every
calendar quarter within which to deposit
with the BSP the securities required under
this Section.
Part IV - Page 6d
Offense
Trust
Third and
First
Second
Asset Size
subsequent
offense(s)
TBs/RBs with
Limited Trust
P300.00
P400.00
P500.00
P600.00
P700.00
P800.00
P1,250.00
P1,500.00
Authority
Up to
P500
Penalty per Calendar Day
The following sanctions shall be

imposed for any deficiency in the basic
security deposit for the faithful
performance of trust, investment
management and other fiduciary duties:
a. On the bank:
i. Monetary penalty/ies:
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of
f. Tobacco Excise Tax Receivable

Monetization Program Investment
Certificates (TEXTR Certificates) backed by
receivables representing the unreleased
portion of the obligation of the National
Government to its LGUs for their share of
the Tobacco Excise Taxes under R.A. No.
7171 amounting to P1.85 billion and
covering the years 2001 and 2002: Provided,
That such securities shall be eligible only to
the extent of the present value of the securities
computed using the original yield to maturity
as of auction/issue date.
g. Securities received, pursuant to the
Domestic Debt Exchange Offer of the Republic
of the Philippines, in exchange for securities
that are eligible reserves for trust duties.
million
Above
P500
million
P1,000.00
but not
exceeding
P1 billion
Above
P1 billion
but not
P2,000.00
P3,000.00
P4,000.00
P5,000.00
P6,000.00
P7,000.00
exceeding
P10 billion
Above
P10 billion
but not
exceeding
P50 billion
Above
P50 billion P8,000.00
P9,000.00 P10,000.00
ii. Non-monetary penalty beginning

with the third offense (all banks) - Prohibition
against the acceptance of new trust and other
fiduciary accounts, and from renewing
expiring trust and other fiduciary contracts
up to the time the violation is corrected.
X405.4
08.12.31
b. On the trust officer and/or other

officer(s) responsible for the deficiency/
non-compliance:
(1) First offense warning that
subsequent violations shall be dealt with
more severely;
(2) Second offense written
reprimand with a stern warning that
subsequent violations shall be subject to
suspension;
(3) Third offense thirty (30) calendar
day-suspension without pay; and
(4) Subsequent offense(s) sixty (60)
calendar day-suspension without pay.
For purposes of determining the
frequency of the violation, the banks
compliance profile for the immediately
preceding three (3) years or twelve (12)
quarters will be reviewed: Provided, That for

purposes of determining appropriate penalty
on the trust officer and/or other responsible
officer(s), any offense committed outside the
preceding three (3) year or twelve (12)
quarter- period shall be considered as the first
offense: Provided, further, That in the case of
trust officer, all offenses committed by him
in the past as trust officer of other institution(s)
shall also be considered: Provided, finally,
That if the offense cannot be attributed to any
other officer of the bank, the trust officer shall
be automatically held responsible since the
ultimate responsibility for ensuring
compliance with the regulation rests upon
him, as evidence may warrant.
(As amended by Circular Nos. 617 dated 30 July 2008 and
585 dated 15 October 2007)
(Next Page is Part IV- Page 7)
Part IV - Page 6e
X405.5
06.12.31
X405.5 Reserves against pesodenominated Common Trust Funds and

Trust and Other Fiduciary Accounts Others
a. Reserves
against
pesodenominated CTFs. In addition to the basic
security deposit, a bank authorized to
shall maintain reserves on:
(1) peso-denominated CTF; and
(2) such other managed peso funds
which partake the nature of collective
investment of a peso-denominated CTF as
may be indicated by the presence of the
following features:
(a) The funds are composed of
contributions from two (2) or more
investors;
(b) The funds are managed/
administered as a vehicle for collective
investment and reinvestment;
(c) The trustee/administrator/agent has
the exclusive management and control
over the funds and the sole right at any time
to sell, convert, invest, exchange, transfer
or otherwise change or dispose of the
assets comprising the funds; and
(d) Investments/contributions to, or
withdrawals from, the funds are being
allowed at anytime or as of a fixed date
in the future, and/or the income, net of
all expenses incurred in the management
of the fund plus the fee of the trustee/
administrator/agent, are being distributed
among the participants of the funds,
without the need to liquidate all assets
of the funds.
The required reserves against pesodenominated CTFs and such other
managed peso funds which partake the
nature of collective investment of pesodenominated CTFs shall be as follows:
UBs/KBs
10%1
TBs
5%2
RBs
4%
In addition to the regular reserve

requirement, the liquidity reserves against
peso-denominated CTFs and such other
peso funds which partake the nature of
collective investment of peso-denominated
CTFs shall be as follows:
UBs/KBs
11%1
TBs
4%2
The liquidity reserve shall be maintained
in the Reserve Deposit Account (RDA) with
the BSP, or may be in the form of the
following: Provided, That it complies with
the guidelines shown in Appendix 71.
(i) Short-term market-yielding
from the BSP-Treasury Department (TD);
(ii) NDC Agri-Agra ERAP Bonds
which are not being used as alternative
have a term of not more than one (1) year
shall not apply; and
(iii) PEACe bonds only to the extent
of the original gross issue proceeds
capitalized interest on the underlying zerocoupon Treasury Notes as and when the
corresponding interest is earned over the
life of the bonds;
prescribed under existing regulations for the
composition of required reserves.
The reserves on peso-denominated
CTFs and such other managed peso funds
shall be provided out of such funds.
b. Reserves against TOFA - Others. In
addition to the basic security deposit, banks
shall maintain reserves on TOFA-Others,
except accounts held under (1)
Administratorship; (2) Bond Issues/Other
Obligations Under Deed of Trust or
Mortgage; (3) Custodianship and Safekeeping; (4) Depository and Reorganization;
(5) Employee Benefit Plans Under Trust; (6)
1 Under Circular 491 dated 12 July 2005, regular reserve and liquidity reserve rates shall be 10% and 11%, respectively,
effective the reserve week starting 15 July 2005.
2 Under MAB dated 29 December 2004, regular reserve and liquidity reserve rates shall be 6% and 2%, respectively, effective
the reserve week starting 07 January 2005.
Part IV - Page 7
X405.5 - X405.6
06.12.31
Escrow; (7) Personal Trust (testamentary

or living trust); (8) Executorship; (9)
Guardianship; (10) Life Insurance Trust;
and (11) Pre-need Plans (institutional/
individual).
The required reserves against TOFAOthers shall be as follows:
UBs/KBs
6%
TBs
5%
RBs
4%
The liquidity reserve, which is in
addition to the regular reserve, shall be as
follows:
UBs/KBs
11%1
TBs
4%
RBs
0%
The liquidity reserve shall be
maintained in the RDA with the BSP, or
may be in the form of the following:
Provided, That it complies with the
guidelines shown in Appendix 71.
(1) Short-term
market-yielding
from the BSP-TD: Provided, That the
reserves on TOFA-Others shall be provided
out of such funds;
(2) NDC Agri-Agra ERAP Bonds which
have a term of not more than one (1) year
shall not apply; and
(3) PEACe bonds only to the extent of
the original gross issue proceeds
capitalized interest on the underlying zerocoupon Treasury Notes as and when the
corresponding interest is earned over the
life of the bonds.
prescribed under existing regulations for
the composition of required reserves.
The reserves on TOFA-Others shall be
provided by the institution out of said funds.
(As amended by Circular Nos. 551 dated 17 November 2006 and
539 dated 09 August 2006)
X405.6 Composition of reserves

a. The provisions of Sec. X254 shall
govern the composition of reserves against
peso-denominated CTFs and such other
managed peso funds, as well as TOFAOthers, of banks authorized to engage in
trust and other fiduciary business.
For purposes of this Subsection, a
special deposit account shall be maintained
by banks with the BSP exclusively for trust
reserves. Deposits maintained by banks
authorized to engage in trust and other
fiduciary business with the BSP up to forty
percent (40%) of the required reserves
against peso-denominated CTFs (less the
percentage allowed to be maintained in
the form of short-term market-yielding
government securities), as well as the
required reserves on TOFA-Others (less the
percentage allowed to be maintained in
the form of short-term market-yielding
government securities), shall be paid
interest at four and one-half percent
(4%) (for UBs/KBs and TBs) and four
percent (4%) (for RBs) per annum
effective 09 October 1998 based on the
average daily balance of said deposits to
be credited quarterly.
Effective 01 July 2003, published
interest rates that will be applied on BSPs
SDAs of banks shall be inclusive of the ten
percent (10%) VAT.
b. The required reserves which may
be in the form of short-term marketyielding government securities shall be
purchased directly from the BSP Treasury
Department at one-half percent (%)
below the prevailing market rate for an
equivalent term and volume and subject
to BSPs firm commitment to buy back at
any time at prevailing market rates. Such
reserves in the form of government
securities shall be in addition to other forms
of eligible reserves such as cash in vault
or on deposit with BSP.
All purchases of said government
securities shall be under the RoSS system
1 Under Circular 491 dated 12 July 2005, regular reserve and liquidity reserve rates shall be 10% and 11%, respectively,
effective the reserve week starting 15 July 2005.
Part IV - Page 8
X405.6 - X406.1
06.12.31
of the BTr. Transactions covering said

securities shall be recorded in accordance
with the guidelines in Appendix 34.
X405.7 Computation of reserve
position. A bank authorized to engage in
trust and other fiduciary business shall
calculate daily the required and available
reserves on the value per books of its pesodenominated CTF s and such other
managed peso funds, as well as on TOFAOthers, based on the seven-day week,
starting Friday and ending Thursday
including Saturdays, Sundays, holidays,
non-banking days or days when there is
no clearing: Provided, That with reference
to holidays, non-banking days and days
where there is no clearing, the reserve
position at the close of banking day
immediately preceding such holidays,
non-banking days or days where there is
no clearing, shall apply. For the purpose
of computing reserve position, the
principal office in the Philippines and all
branches and agencies located therein
shall be treated as a single unit.
The required reserves in the current
period (reference reserve week) shall be
computed based on the corresponding
levels of peso-denominated CTFs and
such other managed peso funds, as well
as on TOFA-Others of the prior week.
For purposes of computing the required
and available statutory and liquidity
reserves for peso-denominated CTFs and
such other managed peso funds, as well as
TOFA - Others, the term value per books
shall refer to the total volume of CTFs, other
managed peso funds, as well as TOFAOthers less booked Allowance for
Probable Losses.
X405.8 Reserve deficiencies;

sanctions. The provisions of Sec. X257 shall
govern the computation of reserve
deficiencies for peso-denominated CTFs and
such other managed peso funds, as well as

TOFA-Others, of banks authorized to engage
in trust and other fiduciary business, including
the sanctions provided in said Section.
X405.9 Report of compliance
Every bank shall submit a report to the BSP
of its daily required and available reserves
on peso-denominated CTFs and such other
managed peso funds, as well as TOFAOthers, in such frequency and within the
deadline stated in Appendix 6.
Sec. X406 Organization and Management
X406.1 Organization. A bank
fiduciary business shall, pursuant to Subsec.
X404.1, include in its by-laws, provisions on
the organization plan or structure of the
department, office or unit which shall
conduct such business. The by-laws shall
also include provisions on the creation of a
trust committee, the appointment of a trust
officer and other subordinate officers and
a clear definition of their duties and
responsibilities as well as their line and staff
functional relationships within the
organization which shall be in accordance
with the following guidelines.
a. Trust and other fiduciary business of
a bank shall be carried out through a trust
department which shall be organizationally,
operationally, administratively and
functionally separate and distinct from the
other departments and/or businesses of the
institution.
A bank which is also engaged in
investment management activities, shall
conduct the same only through its trust
department and the responsibilities of the
board of directors, trust committee and
trust officer shall be construed to include
the proper administration and management
of investment management activities.
No bank shall undertake any of the
trust and other fiduciary business and,
Part IV - Page 9
X406.1 - X406.3
05.12.31
whenever applicable, investment

management activities outside the direct
control, authority and management of the
trust department or through any
department or office which is involved
in the other businesses of the bank, such
as the Treasury, Funds Management or
any similar department, otherwise, any
such business shall be considered part
of the banks real liabilities.
The bank proper and the trust
department may share the following
activities: (1) electronic data processing;
(2) credit investigation; (3) collateral
appraisal; and (4) messengerial, janitorial
and security services.
b. The trust department, trust officer
and other subordinate officers of the trust
department shall only be directly
responsible to the banks trust committee
which shall, in turn, be only directly
responsible to the banks board of
directors.
No director, officer or employee taking
part in the management of trust and other
fiduciary accounts shall perform duties in
other departments or the audit committee
of the bank and vice versa. However,
branch managers duly authorized by the
board of directors may, for or on behalf of
the trust officer, sign predrawn trust
instruments such as CTFs.
c. The organization structure and
definition of duties and responsibilities of
the trust committee, officers and employees
of the trust department shall reflect
adherence to the minimum internal control
standards prescribed by the BSP.
d. Provisions shall be made by the
bank to have legal assistance readily
available in the review of proposed and/or
existing trust and fiduciary agreements and
documents and in the handling of legal and
tax matters related thereto.
X406.2 Composition of trust
committee. The trust committee shall be
composed of at least five (5) members
Part IV - Page 10
including the president, the trust officer and

directors who are appointed by the board
of directors on a regular rotation basis and
who are not officers of the bank proper.
No member of the audit committee, if the
bank has any, shall be concurrently
designated as a member of the trust
committee: Provided, That in the case of a
trust committee composed of more than
five (5) members, the appointment therein
of an operating officer may be allowed only
if the required balance in the membership
of at least three (3) members of the board
for every operating officer shall be
maintained: Provided, further, That the
Philippine branch of a foreign bank may
appoint its resident manager or chief
executive officer in lieu of the president
while the positions allotted for members
of the board may be filled up by the area
manager and/or officers/representatives
from the Head Office who are not involved
in audit-related activities.
term officer shall include the president,
executive vice-president, general
manager, corporate secretary, treasurer and
others mentioned as officers of the bank,
or those whose duties as such are defined
in the by-laws, or are generally known to
be officers of the bank (or any of its
branches and offices other than the Head
Office) either through announcement,
representation, publication or any kind of
communication made by the bank.
The board of directors shall duly note
in the minutes the committee members
and designate the chairman who shall be
one of the directors referred to above.
X406.3 Qualifications of committee
members, officers and staff. The banks
trust department shall be staffed by persons
of competence, integrity and honesty.
Directors, committee members and
officers charged with the administration of
trust and other fiduciary activities shall, in
addition to meeting the qualification
X406.3 - X406.4
05.12.31
standards prescribed for directors and

officers of banks, possess the necessary
technical expertise in such business:
Provided, That trust officers who shall be
appointed shall have at least two (2) years
of actual experience or training in trust
operations.
X406.4 Responsibilities of
administration
a. Board of Directors. The board of
directors is responsible for the proper
administration and management of trust
and other fiduciary business. Funds and
properties held in trust or in any fiduciary
capacity shall be administered with the skill,
care, prudence and diligence necessary
under the circumstances then prevailing
that a prudent man, acting in like capacity

and familiar with such matters, would
exercise in the conduct of an enterprise of
like character and with similar aims.
The responsibilities of the board of
directors shall include, but need not be
limited to, the following:
(1) It shall determine and formulate
general policies and guidelines on the: (a)
acceptance, termination, or closure of trust
and other fiduciary accounts; (b) proper
administration and management of each
trust and other fiduciary account; and (c)
investment, reinvestment and disposition
of funds or property held in its capacity as
trustee or fiduciary;
(2) It shall direct and review the
actions of the trust committee and all
(Next page is Part IV - Page 11)
Part IV - Page 10a
X406.4
05.12.31
officers and employees designated to

manage the trust and other fiduciary
accounts, especially accounts without
specific agreements on investments or
discretionary accounts;
(3) It shall approve or confirm the
acceptance, termination or closure of all
trust and other fiduciary accounts and shall
record such in its minutes;
(4) Upon the acceptance of an
account, it shall immediately review all
non-cash assets received for management.
Likewise, it shall make a review of the
trust and/or fiduciary assets at least once
every twelve (12) months to determine
the advisability of retaining or disposing
of such assets;
(5) It shall be responsible for taking
appropriate action on the examination
reports of supervisory agencies, internal
and/or external auditors on the banks trust
and other fiduciary business and recording
such actions thereon in the minutes;
(6) It shall designate the members of
the trust committee, the trust officer and
subordinate officers of the trust department
and shall be responsible for requiring
reports from said committee and officers
and recording its actions thereon in the
minutes; and
(7) It shall establish an appropriate
staffing pattern and adopt operating
budgets that shall enable the trust
department to effectively carry out its
functions. It shall likewise be responsible
for providing the officers and staff of the
bank with appropriate training programs
in the administration and operation of all
phases of trust and other fiduciary
business.
The board of directors may, by action
duly entered in the minutes, delegate its
authority for the acceptance, termination,
closure or management of trust and other
fiduciary accounts to the trust committee
or to the trust officer, subject to certain
guidelines approved by the board.
b. Trust Committee. The trust

committee duly constituted and
authorized by the board of directors shall
act within the sphere of authority which
may be provided in the by-laws and/or as
may be delegated by the board, such as,
but not limited to, the following:
(1) The acceptance and closing of trust
and other fiduciary accounts;
(2 The initial review of assets placed
under the trustees or fiduciarys
custody;
(3) The investment, reinvestment and
disposition of funds or property;
(4) The review and approval of
transactions between trust and/or fiduciary
accounts; and
(5) The review of trust and other
fiduciary accounts at least once every
twelve (12) months to determine the
advisability of retaining or disposing of the
trust or fiduciary assets, and/or whether the
account is being managed in accordance
with the instrument creating the trust or
other fiduciary relationship.
For this purpose, the trust committee
shall meet whenever necessary and keep
minutes of its actions and make periodic
reports thereon to the board.
c. Trust Officer. The trust officer
designated by the board of directors as
head of the Trust Department shall act and
represent the bank in all trust and other
fiduciary matters within the sphere of his
authority as may be provided in the
by-laws or as may be delegated by the
board. His responsibilities shall include,
but need not be limited to the following:
(1) The administration of trust and
other fiduciary accounts;
(2) The implementation of policies and
instructions of the board of directors and
the trust committee;
(3) The submission of reports on
matters which require the attention of the
trust committee and the board of
directors;
Part IV - Page 11
X406.4 - X407
07.12.31
(4) The maintenance of adequate books,

records and files for each trust or other
fiduciary account; and
(5) The maintenance of necessary
controls and measures to protect assets
under his custody and held in trust or other
fiduciary capacity.
X406.9 Outsourcing services in trust
departments. Trust departments of banks
performing trust and other fiduciary business
and investment management activities are
covered by the requirement of prior BSP
approval for outsourcing services under
Subsec. X169.3.
(M-2007-009 dated 22 March 2007)
Sec. X407 Non-Trust, Non-Fiduciary and/

or Non-Investment Management
Activities The basic characteristic of trust,
other fiduciary and investment
management relationship is the absolute
non-existence of a debtor-creditor
relationship, thus, there is no obligation on
the part of the trustee, fiduciary or
investment manager to guarantee returns
on the funds or properties regardless of the
results of the investment. The trustee,
fiduciary or investment manager is entitled
to fees/commissions which shall be
stipulated and fixed in the contract or
indenture and the trustor or principal is
entitled to all the funds or properties and
earnings less fees/commissions, losses and
other charges.
Any agreement/
arrangement that does not conform to these
shall not be considered as trust, other
fiduciary and/or investment management
relationship.
The following shall not constitute a trust,
other fiduciary and/or investment
management relationship:
a. When there is a preponderance of
purpose or of intent that the arrangement
creates or establishes a relationship other
Part IV - Page 12
than a trust, fiduciary and/or investment

management;
b. When the agreement or contract is
itself used as a certificate of indebtedness
in exchange for money placement from
clients and/or as the medium for confirming
placements and investment thereof;
c. When the agreement or contract
of an account is accepted under the
signature(s) of those other than the trust
officer or subordinate officer of the trust
department or those authorized by the
board of directors to represent the trust
officer;
d. Where there is a fixed rate or
guaranty of interest, income or return in
favor of its client or beneficiary: Provided,
however, That where funds are placed in
fixed income-generating investments, a
quotation of income expectation or like
terms, shall neither be considered as
arrangements with a fixed rate nor a
guaranty of interest, income or return when
the agreement or indenture categorically
states in bold letters that the quoted income
expectation or like terms is neither assured
nor guaranteed by the trustee or fiduciary
and it does not, therefore, entitle the client
to a fixed interest or return on his
investments: Provided, further, That any
of the following practices or practices
similar and/or tantamount thereto shall be
construed as fixing or guaranteeing the rate
of interest, income or return:
(1) Issuance of certificates, side
agreements, letters of undertaking or other
similar documents providing for fixed
rates or guaranteeing interest, income or
return;
(2) Paying trust earnings based on
indicated or expected yield regardless of
the actual investment results;
(3) Increasing or reducing fees in
order to meet a quoted or expected yield;
(4) Entering into any arrangement,
scheme or practice which results in the
payment of fixed rates or yield on trust
X407
05.12.31
investments or in the payment of the

indicated or expected yield regardless of
the actual investment results; and
e. Where the risk or responsibility is
exclusively with the trustee, fiduciary or
investment manager in case of loss in the
investment of trust, fiduciary or investment
management funds, when such loss is not

due to the failure of the trustee or fiduciary
to exercise the skill, care, prudence and
diligence required by law.
Trust, other fiduciary and investment
management activities involving any of the
foregoing which are accepted, renewed
Part IV - Page 12a
X407 - X408.9
05.12.31
or extended after 16 October 1990 shall be

reported as deposit substitutes and shall be
subject to the reserve requirement for deposit
substitutes from the time of inception,
without prejudice to the imposition of the
applicable sanctions provided for in Sections
36 and 37 of R.A. No. 7653.
Sec. X408 Unsafe and Unsound Practices
Whether a particular activity may be
considered as conducting business in an
unsafe or unsound manner all relevant
facts must be considered. An analysis of
the impact thereof on the banks
operations and financial conditions must
be undertaken, including evaluation of
capital position, asset condition,
management, earnings posture and
liquidity position.
In determining whether a particular act
or omission, which is not otherwise
prohibited by any law, rule or regulation
affecting banks, may be deemed as
unsound manner, the Monetary Board,
upon report of the head of the supervising
or examining department based on
findings in an examination or a complaint,
shall consider any of the following
circumstances:
a. The act or omission has resulted or
may result in material loss or damage, or
abnormal risk or danger to the safety,
stability, liquidity or solvency of the bank;
b. The act or omission has resulted or
may result in material loss or damage or
abnormal risk to the banks depositors,
creditors, investors, stockholders or to the
BSP or to the public in general;
c. The act or omission has caused
any undue injury, or has given
unwarranted benefits, advantage or
preference to the bank or any party in the
discharge by the director or officer of his
duties and responsibilities through
manifest partiality, evident bad faith or
gross inexcusable negligence; or
d. The act or omission involves

the bank, whether or not the director or
officer profited or will profit thereby.
The list of activities which may be
considered unsafe and unsound is shown
in Appendix 48.
In line with the statement of principles
governing trust and other fiduciary business
under Sec. X401, the trustee, fiduciary or
investment manager shall desist from the
following unsound practices:
a. Entering in an arrangement
whereby the client is at the same time the
borrower of his own fund placement, or
whereby the trustor or principal is a
borrower of other trust, fiduciary or
investment management funds belonging
to the same family or business group of
such trustor or principal;
b. Granting loans or accommodations
to any trust committee member, officer
and employee of the trust department
except where such loans are obtained by
said persons as members of an employee
benefit fund of the trustees own
institution;
c. Borrowing from, or selling trust,
other fiduciary and/or investment
management assets to, the bank proper to
cover portfolio losses and/or to guarantee
the return of principal or income;
d. Granting new loans to any borrower
who has a past due and/or classified loan
account with the bank proper or the trust
department; and
e. Requiring clients to sign documents
in blank.
X408.9 Sanctions. The Monetary
Board may, at its discretion and based on
the seriousness and materiality of the acts
or omissions, impose any or all of the
following sanctions provided under
Part IV - Page 13
X408.9 - X409.1
05.12.31
Section 37 of R.A. No. 7653 and Section

56 of R.A. No. 8791, whenever a bank
conducts business in an unsafe and
unsound manner:
a. Issue an order requiring the bank to
cease and desist from conducting
businessin an unsafe and unsound manner
and may further order that immediate action
be taken to correct the conditions resulting
from such unsafe or unsound practice;
b. Fines in amounts as may be
appropriate, but in no case to exceed
P30,000 a day on a per transaction basis
taking into consideration the attendant
circumstances, such as the gravity of the
act or omission and the size of the bank, to
be imposed on the bank, their directors and/
or responsible officers;
c. Suspension of interbank clearing
privileges/immediate exclusion from clearing;
d. Suspension of rediscounting
e. Suspension of lending or foreign
f. Suspension of responsible directors
and/or officers;
g. Revocation of quasi-banking
license; and/or
h. Receivership and liquidation under
All other provisions of Sections 30 and
37 of R.A. No. 7653, whenever appropriate,
shall also be applicable on the conduct
of business in an unsafe or unsound
manner.
The imposition of the above sanctions
is without prejudice to the filing of
appropriate criminal charges against
culpable persons as provided in Sections
34, 35 and 36 of R.A. No. 7653.
Sec. X409 Trust and Other Fiduciary
Business. The conduct of trust and other
fiduciary business shall be subject to the
following regulations.
Part IV - Page 14
X409.1 Minimum documentary

requirements. Each trust or fiduciary
account shall be covered by a written
document establishing such account, as
follows:
a. In the case of accounts created by
an order of the court or other competent
authority, the written order of said court or
authority.
b. In the case of accounts created by
corporations, business firms, organizations
or institutions, the voluntary written
agreement or indenture entered into by the
parties, accompanied by a copy of the board
resolution or other evidence authorizing the
establishment of, and designating the
signatories to, the trust or other fiduciary
account.
c. In the case of accounts created by
individuals, the voluntary written agreement
or indenture entered into by the parties.
The voluntary written agreement or
indenture shall include the following
minimum provisions:
(1) Title or nature of contractual
agreement in noticeable print;
(2) Legal capacities, in noticeable print,
of parties sought to be covered;
(3) Purposes and objectives;
(4) Funds and/or properties subject of
the arrangement;
(5) Distribution of the funds and/or
properties;
(6) Duties and powers of trustee or
fiduciary;
(7) Liabilities of the trustee or fiduciary;
(8) Reports to the client;
(9) Termination of contractual
arrangement and, in appropriate cases,
provision for successor-trustee or fiduciary;
(10) The amount or rate of the
compensation of trustee or fiduciary;
(11) A statement in noticeable print to
the effect that trust and other fiduciary
business are not covered by the PDIC and
that losses, if any, shall be for the account
of the client; and
X409.1 - X409.3
07.12.31
(12) Disclosure requirements for

transactions requiring prior authority and/
or specific written investment directive from
the client, court of competent jurisdiction
or other competent authority.
X409.2 Lending and investment
disposition. Assets received in trust or in
other fiduciary capacity shall be
administered in accordance with the terms
of the instrument creating the trust or other
fiduciary relationship.
When a trustee or fiduciary is granted
discretionary powers in the investment
disposition of trust or other fiduciary funds
and unless otherwise specifically
enumerated in the agreement or indenture
and directed in writing by the client, court
of competent jurisdiction or other competent
authority, loans and investments of the fund
shall be limited to:
of the Philippines or loans against such
government securities;
b. Loans fully guaranteed by the
Republic of the Philippines as to the payment
of principal and interest;
c. Loans fully secured by a hold-out
on, assignment or pledge of deposits
maintained either with the bank proper or
other banks, or of deposit substitutes of the
bank, or of mortgage and chattel mortgage
bonds issued by the trustee or fiduciary;
d. Loans fully secured by real estate
or chattels in accordance with Section 78
of R.A. No. 337, as amended, and subject
to the requirements of Sections 75, 76, and
77 of R.A. No. 337, as amended; and
e. Investment in the BSP special deposit
account (SDA) facility made in accordance
with the guidelines in Appendix 78.
The specific directives required under
this Subsection shall consist of the following
information:
(1)
(2)
(3)
(4)
The transaction to be entered into;

The borrowers name;
Amount involved; and
Collateral security(ies), if any.
(As amended by M-2007-038 dated 29 November 2007 and

M-2007-011 dated 08 May 2007)
X409.3 Transactions requiring prior

authority. A trustee or fiduciary shall not
undertake any of the following transactions
for the account of a client, unless prior to its
execution, such transaction has been fully
disclosed and specifically authorized in
writing by the client, beneficiary, other partyin-interest, court of competent jurisdiction
or other competent authority:
a. Lend, sell, transfer or assign money
or property to any of the departments,
directors, officers, stockholders or
employees of the trustee or fiduciary, or
relatives within the first degree of
consanguinity or affinity, or the related
interest of such directors, officers and
stockholders; or to any corporation where
the trustee or fiduciary owns at least fifty
percent (50%) of the subscribed capital or
voting stock in its own right and not as
trustee nor in a representative capacity;
b. Purchase or acquire property or debt
instruments from any of the departments,
directors, officers, stockholders, or employees
of the trustee or fiduciary, or relatives within
the first degree of consanguinity or affinity, or
the related interest of such directors, officers
and stockholders; or from any corporation
where the trustee or fiduciary owns at least
fifty percent (50%) of the subscribed capital
or voting stock in its own right and not as
c. Invest in equities of, or in securities
underwritten by, the trustee or fiduciary or
a corporation in which the trustee or
fiduciary owns at least fifty percent (50%)
of the subscribed capital or voting stock in
its own right and not as trustee nor in a
representative capacity; and
d. Sell, transfer, assign, or lend money
or property from one trust or fiduciary
Part IV - Page 15
X409.3 - X409.8
05.12.31
account to another trust or fiduciary account

except where the investment is in any of
those enumerated in Items "a" to "d" of
Subsec. X409.2.
DOSRIs covered by this Subsection shall
be those considered as such under existing
regulations on loans to DOSRI in Part III - E
of this Manual. The procedural and
reportorial requirements in said regulations
shall also apply.
The disclosure required under this
Subsection shall consist of the following
(1) The transactions to be entered into;
(2) Identities of the parties involved in
the transactions and their relationships (shall
not apply to Item "d" of this Subsection);
(3) Amount involved; and
(4) Collateral security(ies), if any.
The above information shall be made
known to clients in a separate instrument or
in the very instrument creating the trust or
fiduciary relationship.
X409.4 Ceilings on loans. Loans funded
by trust accounts shall be subject to the SBL
and DOSRI ceilings imposed on banks under
Secs. X303, X330 and X331. For purposes
of determining compliance with said
ceilings, the total amount of said loans
granted by the trust department and the bank
to the same person, firm or corporation shall
be combined.
X409.5 Funds awaiting investment or
distribution. Funds held by the trustee or
fiduciary awaiting investment or distribution
shall not be held uninvested or undistributed
any longer than is reasonable for the proper
management of the account.
X409.6 Other applicable regulations
on loans and investments. The loans and
investments of trust and other fiduciary
accounts shall be subject to pertinent laws,
rules and regulations for banks that shall
include but need not be limited to the
following:
Part IV - Page 16
a. Requirements of Sections 76 and

77 of R.A. No. 337, as amended;
b. Provisions of Section 4(e) of the
New Rules on Registration of Short-Term
Commercial Papers and Section 7(f) of the
New Rules on Registration of Long-Term
Commercial Papers issued by the SEC
(Appendices 13 and 14).
c. Criteria for past due accounts; and
d. Qualitative appraisal of loans,
investments and other assets that may
require provision for probable losses
which shall be booked in accordance with
the Manual of Accounts for Trust and Other
Fiduciary Business and Investment
Management Activities.
X409.7 Operating and accounting
methodology. Trust and other fiduciary
accounts shall be operated and
following:
a. The trustee or fiduciary shall
administer, hold or manage the fund or
property in accordance with the instrument
creating the trust or other fiduciary
relationship; and
b. Funds or property of each client
shall be accounted separately and distinctly
from those of other clients herein referred
to as individual account accounting.
X409.8 Tax-exempt individual trust
accounts. The following shall be the
features/requirements of individual trust
accounts which may be exempted from the
twenty percent (20%) final tax under
Section 24(B)(1) of R.A. No. 8424 (The Tax
Reform Act of 1997):
a. The tax exemption shall apply to
trust indentures/agreements contracted on
or after 03 January 2000;
b. The trust indenture/agreement shall
only be between individuals who are
Filipino citizens or resident aliens and
banks acting as trustee. The trust indenture/
agreement shall be non-negotiable and
non-transferable;
X409.8 - X409.9
06.12.31
c. The trust indenture/agreement shall

indicate that pursuant to Section 24(B)(1)
of R.A. No. 8424, interest income of the
trust fund derived from investments in
interest-bearing instruments (e.g., time
deposits, government securities, loans and
other debt instruments) which are
otherwise subject to the twenty percent
(20%) final tax shall be exempt from said
final tax provided the fund was held by the
trustee-bank for at least five (5) years. If
said fund was held for a period less than
five (5) years, interest income shall be
subject to a final tax based on the following
schedule
Holding Period
Rate of Tax
Four (4) years to less than five (5) years

Three (3) years to less than four (4) years
Less than three (3) years
5%
12%
20%
Necessarily, the trust indenture/

agreement shall clearly indicate the date
when the trustee-bank actually received
the trust funds which shall serve as basis
for determining the holding period of the
funds.
d. A trustee may accept additional
funds for inclusion in trust accounts which
have been established as tax-exempt under
R.A. No. 8424. However, the receipt of
additional funds shall be properly
documented by indicating that they are part
of existing tax-exempt trust accounts and
that the interest income of the additional
funds derived from investments in interestbearing instruments shall be exempt from
the twenty percent (20%) final tax under
the same conditions mentioned in the
preceding item. The document shall also
indicate the date when the funds were
received by the trustee-bank to serve as
basis for determining the minimum five (5)year holding period for tax exemption
purposes of the additional funds; and
e. Tax-exempt individual trust
accounts established under this Subsection
shall be subject to the provisions of Subsecs.

X409.1(c) and X409.2 up to X409.7.
X409.9 Living trust accounts. The
guidelines on living trust accounts are as
follows:
a. Definition. Living trust is defined
under the Manual of Accounts for Trust, as
a personal trust created by agreement. It
becomes operational during the lifetime of
the trustor as soon as the agreement is
accomplished.
Under a living trust, the trustor (also
known as settlor) conveys property or a
sum of money to be managed by the
trustee, as the agreement dictates, for the
benefit of the trustor and third person(s) or
third person(s) only. However, the trustor/s
cannot create a trust with himself/
themselves as the sole beneficiary/(ies).
The functions and authorities of the trustee
as defined in the agreement shall include:
(1) the purpose or intention of the trust;
(2) the nature and value of the property
or sum of money that comprise the trust;
(3) the trustees investment powers;
(4) the name(s) of the beneficiaries; and
(5) the terms and conditions under
which the income and/or principal of the
trust is to be paid or to be disposed of during
the lifetime and ultimately, upon the death
of the trustor or upon the occurrence of a
specified event(s).
A living trust may either be revocable
or irrevocable.
b. Minimum criteria. In line with
such definition, transactions considered as
living trust accounts should meet the
following minimum criteria:
(1) Minimum entry amount and
maintaining balance shall at least be
P100,000: Provided, That living trust
accounts with balances of up to P500,000
shall only be invested in deposits and
(2) Living trust accounts shall be
maintained for a minimum period of six
Part IV - Page 17
X409.9
06.12.31
(6) months. The termination of the living

trust agreement, for any cause, within the
minimum holding period shall render the
trustor ineligible from opening a new living
trust account within a period of one (1) year
from termination date;
(3) Reversion of any part of the
principal to the trustor, except in cases
provided under the dispositive portion, shall
be allowed only upon termination of the
living trust agreement: Provided, That in
no case can there be a complete or
substantial reversion of the principal
pursuant to the dispositive portion within
the minimum holding period nor can the
principal fall below P100,000;
(4) Any living trust account that does
not meet the requirement on the minimum
entry and minimum maintaining balance
or is not invested in qualified outlets shall
be considered as other fiduciary accounts
subject to applicable reserve and other
requirements;
(5) Pre-printed living trust agreements
may be allowed for expediency: Provided,
That the sections for the trust purpose and
the dispositive provision are left blank and
shall only be filled-up upon the clients signing
thereof. The purpose shall categorically state
the real intention of the trustor, which may
include, but need not be limited to:
(a) providing his/her and beneficiary/
(ies) present and/or future financial support;
(b) protecting his/her beneficiary/(ies)
against his/her inexperience in business
matters;
(c) preventing him/her from making
imprudent expenditures;
(d) prevent the beneficiary/(ies) from
living beyond their means in case of
outright disposition of assets in their favor;
(e) protecting the beneficiary/(ies)
against unforeseen contingencies such as
incompetency, incapacity, physical
disability or similar misfortune; and
(f) setting aside and segregating
particular assets, proceeds or payments for
administration and distribution pursuant to

a court decree or by agreement.
The dispositive provision should clearly
and specifically define the terms and
conditions under which the principal and/
or income shall be distributed in order to
accomplish such purpose/(s), by taking into
consideration the frequency of redemption;
the respective interests of each beneficiary;
and to whom the proceeds shall be payable.
Redemption of funds shall strictly be in
accordance with the said terms and
conditions; and
(6) A living trust account may be
opened jointly under one (1) living trust
agreement by related individuals up to the
second degree of consanguinity or affinity;
Provided, That the requirements under Item
5 above are fully complied with.
Unrelated individuals or those beyond the
second degree of consanguinity or affinity
may likewise open a joint living trust
account under one (1) living trust
agreement: Provided, That the minimum
contribution of each individual is at least
P100,000: Provided further, That the trust
is for a common purpose and: Provided
finally, That the requirements under Item
5 are fully complied with.
c. Marketing. Officers and personnel
of the bank proper, including branch
managers, shall not be allowed to market
living trust products and sign pre-printed
living trust agreements. However, branch
managers/officers may be allowed to refer
clients to the Trust Department and give
short introduction on the living trust
products to prospective clients.
d. Transitory provision. Outstanding
living trust accounts that do not meet the
foregoing additional requirements shall be
given twelve (12)1 months from 11 April
2006 to comply with the aforestated
requirements; otherwise, such accounts
shall be considered as Other Fiduciary
Accounts subject to applicable reserve
requirements.
1 Original 6 months transitory period under Cir. 521 extended by another 6 months under Cir. 553.
Part IV - Page 18
X409.9 - X409.16
06.12.31
e. Sanctions. Any violation of the

provisions of this Subsection shall be subject
to the sanctions provided under Section 37
of R.A. No. 7653 (The New Central Bank
Act).
(Circular Nos. 553 dated 22 December 2006 and 521 dated 21
March 2006)
X409.10 - X409.15 (Reserved)

X409.16 Qualification and
accreditation of private banks acting as
trustee on any mortgage or bond issuance
by any municipality, government-owned
or controlled corporation, or any body
politic
a. Applicability. Private banks duly
accredited by the BSP may act as trustee
on any mortgage or bond issued by any
municipality, GOCC, or any body politic.
b. Application for accreditation. A
private bank desiring to act as trustee on
any mortgage or bond issued by any
municipality, GOCC, or any body politic
shall file an application for accreditation
with the appropriate supervising and
examining department of SES. The
application shall be signed by the president
or officer of equivalent rank of the bank
documents:
(1) certified true copy of the resolution
of the institutions board of directors
authorizing the application;
(2) a certification signed by the
the institution has complied with all the
qualification requirements for accreditation.
c. Qualification requirements. A
bank applying for accreditation to act as
trustee on any mortgage or bond issued
by any municipality, government-owned
or controlled corporation, or any body
politic must comply with the requirements
in Appendix 5b.
d. Independence of the trustee. A
bank is prohibited from acting as trustee of
a mortgage or bond issuance if any elective

or appointive official of the LGU, GOCC,
or body politic which issued said mortgage
or bond and/or his related interests own
such number of shares of the bank that will
allow him or his related interests to elect
at least one (1) member of the board of
directors of such bank or is directly or
indirectly the registered or beneficial
owner of more than ten percent (10%) of
any class of its equity security.
e. Investment and management of
the funds. A domestic bank designated as
trustee of a mortgage or bond issuance
may hold and manage, in accordance with
the provisions of the trust indenture or
agreement, the proceeds of the mortgage
or bond issuance and such assets and funds
of the issuing municipality, corporation, or
body politic as may be required to be
delivered to the trustee under the trust
indenture/agreement, subject to the
following conditions/restrictions:
(1) Pending the utilization of such
funds pursuant to the provisions of the trust
indenture/agreement, the same shall only
be deposited in any bank, other than the
trustee/bank proper, its subsidiary or
affiliate authorized to accept deposits from
the Government or government entities,
or invested in peso-denominated treasury
bills acquired/purchased from any
securities dealer/entity, other than the
trustee or any of its unit/department, its
subsidiary or affiliate.
(2) Investments of funds constituting or
forming part of the sinking fund created as
the primary source for the payment of the
principal and interests due the mortgage
or bonds shall also be limited to deposits
in any bank, other than the trustee/bank
proper, its subsidiary or affiliate, authorized
to accept deposits from the Government
or government entities and investments in
government securities that are consistent
with such purpose which must be acquired/
purchased from any securities dealer/
Part IV - Page 19
X409.16 - X409.17
06.12.31
entity, other than the trustee or any of

its unit/department, its subsidiary or
affiliate.
f. Waiver of confidentiality. A bank
designated as trustee of any mortgage or
bond issued by any municipality, GOCC,
or any body politic shall submit to the
department of SES a waiver of the
confidentiality of information under
Sections 2 and 3 of R.A. No. 1405, as
amended, duly executed by the issuer of
the mortgage or bond in favor of the BSP.
g. Reportorial requirements. A bank
authorized by the BSP to act as trustee of
the proceeds of mortgage or bond
issuance of a municipality, GOCC or
controlled corporation, or body politic shall
comply with reportorial requirements that
may be prescribed by the BSP.
Regulations on Trust, Other Fiduciary
Business and Investment Management
Activities. The provisions of the Rules and
Activities not inconsistent with the
provisions of this Subsection shall form part
of these rules.
i. Sanctions. Without prejudice to
the penal and administrative sanctions
respectively, of the R.A. No. 7653,
violation of any provision of this
Subsection shall be subject to the
following sanctions/penalties depending
on the gravity of the offense:
(1) First offense
(b) Reprimand for the directors/
(2) Second offense
Part IV - Page 20

to the date it was corrected;
(b) Suspension for ninety (90) days
without pay for directors/officers
responsible for the violation; and
(c) Revocation of the authority to act
as trustees on any mortgage or bond
issuance by any municipality, GOCCs, or
body politic.
(3) Subsequent offense
to the date it was corrected;
trust license;
(c) Suspension for one hundred twenty
X409.17 Trust fund of pre-need
companies. The following rules and
regulations shall govern the acceptance,
management and administration of the
trust funds of pre-need companies by banks
and other entities authorized to perform
trust and other fiduciary functions.
a. Administration of trust fund. In line
with the policy of providing greater
protection to pre-need planholders,
prudential measures are hereby laid out
in the administration of trust funds of preneed companies. The trust fund, inclusive
of earnings, shall be administered and
managed by the trustee with the skill, care,
prudence and diligence necessary under
the circumstances then prevailing that a
prudent man, acting in the same capacity
and familiar with such matters, would
exercise in the conduct of an enterprise of
a like character and similar aims.
The trustee shall have exclusive
management and control over the trust
fund and the right at any time to sell,
convert, invest, change, transfer or
otherwise dispose of the assets comprising
the funds.
X409.17
06.12.31
b. Trustee. No trust entity shall act as

a trustee or administer or hold a trust fund
established by a pre-need company, which
is a subsidiary or affiliate, as defined under
existing BSP regulations, of such trust
entity. Trust entities currently holding or
administering trust funds of an affiliate preneed company may continue to act as
trustee of such funds after the transition
period provided under Item g only upon
prior approval of the Monetary Board on
the basis of a clear showing that no potential
conflict of interest will arise. An absence
of any exception or finding on conflicts of
interest during an examination of the trust
entity shall be deemed as prima facie
evidence that no potential conflict of
interest will arise.
c. Investment of the trust fund.
Unless otherwise allowed under existing
laws or regulations issued by the agency
having jurisdiction and supervision over
pre-need companies, or with prior written
approval by said agency, loans and
investments of the trust funds shall be
limited to:
or obligations wherein the servicing and
repayment of which are fully guaranteed
by the Republic of the Philippines or loans
against such government securities;
(2) Commercial
papers
duly
registered with the SEC with a credit rating
of one (1) for short term and AAA for
long-term or their equivalent;
(3) Loans fully guaranteed by the
Republic of the Philippines, as to the
payment of principal and interest;
(4) Loans fully secured by a hold-out
other banks, and/or of deposit substitutes
or of mortgage and chattel mortgage bonds
issued by the trustee/fiduciary or by other
banks;
(5) Loans fully secured by real estate

in accordance with Section 37 and subject
to the requirements of Sections 39 and 40
of R.A. No. 8791 and their implementing
regulations; and
(6) Loans
fully
secured
by
unconditional payment guarantees (such
as standby letters of credit and letter of
indemnity) issued by banks/multilateral
financial institutions.
d. Transactions with DOSRI. The
trustee shall not, for the account of the
trustor or the beneficiary of the trust,
purchase or acquire property from, or sell,
transfer, assign or lend money or property
to, or purchase debt instruments of, any
of the departments, directors, officers,
stockholders, employees, subsidiaries and
affiliates of the trustee and/or the trustor,
and relatives within the first degree of
interests, of such directors, officers and
stockholders, without prejudice to any rule
that may be issued by the agency having
jurisdiction and supervision over such preneed company allowing such transaction
with the prior written approval of such
agency. Such written approval shall
clearly specify the amount of the loan and/
or investment including the name of the
concerned director, officer, stockholder
and their related interests.
e. Applicability of the Rules and
Activities (Trust Rules). The provisions of
the Trust Rules consistent with the
provisions of this Subsection shall
supplementarily apply to trust funds of preneed companies.
f. Penalties and sanctions. Any
violation of the provisions of this
Subsection shall be a ground for
prohibiting the concerned entity from
accepting, managing and administering
trust funds of pre-need companies without
prejudice to the imposition of the
Part IV - Page 20a
X409.17 - X410.5
06.12.31
applicable sanctions prescribed or allowed

under the Trust Rules.
g. Transitory provisions. Banks which
are presently administering and managing
trust funds of pre-need companies are
hereby given a period of one (1) year from
25 April 2006 to comply with the
requirements hereof.
(Memorandum to All Banks and NBFIs dated 28 March 2006)
Sec. X410 Unit Investment Trust Funds/

Common Trust Funds.1 The following rules
and regulations shall govern the creation,
administration and investment/s of Unit
Investment Trust (UIT) Funds.
The rules and regulations on Common
Trust Funds (CTFs) are in Appendix 60.
X410.1 Definitions
a. Unit Investment Trust Funds. Unit
Investment Trust Funds are open-ended
pooled trust funds denominated in pesos
or any acceptable currency, which are
operated and administered by a trust entity
and made available by participation. The
term Unit Investment Trust Funds is
synonymous to CTFs. As an open-ended
fund, participation or redemption is
allowed as often as stated in its plan
rules.
UIT Funds shall not include long term
funds designed for the primary purpose of
availing the tax incentives/exemption
under Section 24(B)(1) of R.A. No. 8424
(The Tax Reform Act of 1997).
b. Trust entity. Any bank, IH or a stock
corporation duly authorized by the
Monetary Board to engage in trust,
investment management and fiduciary
business.
c. Board of directors. For this purpose,
the term shall include a trust entitys duly
constituted board of directors or its
functional oversight equivalent which shall
include the country head in the case of
foreign banks.
X410.2 Establishment of a Unit

Investment Trust Fund. Any trust entity
authorized to perform trust functions may
establish, administer and maintain one (1)
or more UIT Funds subject to applicable
provisions under this Section.
X410.3 Administration of a Unit
Investment Trust Fund. The trustee shall
have exclusive management and control
of each UIT Fund under its administration,
and the sole right at any time to sell,
convert, reinvest, exchange, transfer or
otherwise change or dispose of the assets
comprising the fund: Provided, That no
participant in a UIT Fund shall have or be
deemed to have any ownership or interest
in any particular account or investment in
the UIT Fund but shall have only its
proportionate beneficial interest in the fund
as a whole.
X410.4 Relationship of trustee with
Unit Investment Trust Fund. A trustee
administering a UIT Fund shall not have
any other relationship with such fund other
than its capacity as trustee of the UIT Fund:
Provided, however, That a trustee which
simultaneously administers other trust,
fiduciary or investment management funds
may invest such funds in the trustees UIT
Fund, if allowed under a policy approved
by the board of directors.
methodology. A UIT Fund shall be
operated and accounted for in accordance
with the following:
a. The total assets and accountabilities
of each fund shall be accounted for as a
single account referred to as pooled-fund
accounting method.
b. Contributions to each fund by
clients shall always be through participation
in units of the fund and each unit shall have
uniform rights or privileges, as any other unit.
1
The regulations on common trust funds (CTFs) were relocated to Appendix 60. UIT Funds regulations took effect on 01
October 2004 (effectivity of Circular 447 dated 03 September 2004).
Part IV - Page 20b
X410.5 - X410.6
08.12.31
c. All such participations shall be

pooled and invested as one (1) account
(referred to as collective investments).
d. The beneficial interest of each
participation unit shall be determined under
a unitized net asset value per unit (NAVPu)
valuation methodology defined in the
written plan of the UIT Fund, and no
participation shall be admitted to, or
redeemed from, the fund except on the
basis of such valuation. To arrive at a funds
NAVPu, the funds total Net Assets is
divided by the total outstanding units. Total
Net Assets is a summation of the market
value of each investment less fees, taxes,
and other qualified expenses, as defined
under the plan rules.
X410.6 Plan rules. Each UIT Fund
shall be established, administered and
maintained in accordance with a written
trust agreement drawn by the trustee,
referred to as the Plan which shall be
approved by the board of directors of the
trustee and a copy of which shall be
submitted to the BSP for processing and
approval prior to its implementation. Each
new UIT Fund Plan filed for approval shall
be charged a processing fee of
P10,000.00.
The Plan shall contain the following
minimum elements:
a. Title of the Plan. This shall
correspond to the product/brand name by
which the UIT Fund is proposed to be
known and made available to its clients.
The Plan rules shall state the classification
of the UIT Fund (e. g., money market fund,
bond fund, balanced fund and equity fund).
b. Manner by which the fund is to be
operated. A statement of the funds
investment objectives and policies
including limitations, if any.
c. Risk disclosure. The Plan rules
shall state both the general risks and risks
specific to the type of fund.
d. Investment powers of the trustee

with respect to the fund, including the
character and kind of investments, which
may be purchased, by the fund. There must
be an unequivocal statement of the full
discretionary powers of the trustee as far
as the funds investments are concerned.
These powers shall be limited only by the
duly stated investment objective and
policies of the fund.
e. The unitized NAVPu valuation
methodology as prescribed under Subsec.
X410.5.d shall be employed.
f. Terms and conditions governing
the admission or redemption of units of
participation in the fund. The Plan rules shall
state that the trustee, prior to admission of
a clients initial participation in the UIT
Fund, shall conduct a client suitability
assessment to profile the risk-return
orientation and suitability of the client to
the specific type of fund. If the frequency
of admission or redemption is other than
daily; that is, any business day, the same
should be explicitly stated in the Plan rules:
Provided, That the admission and redemption
prices shall be based on the end of day
NAVPu of the fund computed after the cutoff time for fund participation and redemption
for that reference day, in accordance with
existing BSP regulations on mark to market
valuation of investment securities.
g. Aside from the regular audit
requirement applicable to all trust
accounts, an external audit of each UIT Fund
shall be conducted annually by an
independent auditor acceptable to the BSP
and the results thereof made available to
participants. The external audit shall be
conducted by the same external auditor
engaged for the audit of the trust entity.
h. Basis upon which the fund may be
terminated. The Plan rules shall state the
rights of participants in case of termination
of the fund. Termination of the fund shall
be duly approved by the trustees board of
(Next Page is Part IV - Page 21)
Part IV - Page 20c
X410.6
08.12.31
directors and a copy of the resolution

of the BSP.
i. Liability clause of the trustee. There
must be a clear and prominent statement
adjacent to where a client is required to
sign the participating trust agreement that
(1) the UIT Fund is a trust product and not
a deposit account or an obligation of, or
guaranteed, or insured by the trust entity
or its affiliates or subsidiaries; (2) the UIT
Fund is not insured or governed by the
PDIC; (3) due to the nature of the
investment, yields and potential yields
cannot be guaranteed; (4) any loss/income
arising from market fluctuations and price
volatility of the securities held by the UIT
Fund, even if invested in government
securities, is for the account of the client/
participant; (5) as such, the units of
participation of the investor in the UIT
Fund, when redeemed, may be worth
more or be worth less than his/her initial
investment/contributions; (6) historical
performance, when presented, is purely
for reference purposes and is not a
guarantee of similar future result; and
(7) the trustee is not liable for losses
unless upon willful default, bad faith or
gross negligence.
j. Amount of fees/commission and
other charges to be deducted from the fund.
The amount of fees that shall be charged to
a fund shall cover the funds fair and
equitable share of the routine administrative
expenses of the trustee such as salaries and
wages, stationery and supplies, credit
investigation, collateral appraisal, security,
messengerial and janitorial services, EDP
expenses, BSP supervision fees and
internal audit fees. However, the trustee may
charge a UIT Fund for special expenses in
case such expenses are (1) necessary to
preserve or enhance the value of the fund,
(2) payable to a third party covered by a
separate contract, and (3) disclosed to
Part IV - Page 21
participants. The trustee shall secure prior

BSP approval for outsourcing services
provided under existing regulations. No
other fees shall be charged to the fund.
Marketing or other promotional related
expenses shall be for the account of the
trustee and shall be presumed covered by
the trust fee.
k. Such other matters as may be
necessary or proper to define clearly the
rights of participants in the UIT Fund. The
provisions of the Plan shall govern
participation in the fund including the rights
and benefits of persons having interest in
such participation, as beneficiaries or
otherwise. The Plan may be amended by
a resolution of the board of directors of the
trustee: Provided, however, That
participants in the fund shall be
immediately notified of such amendments
and shall be allowed to withdraw their
participations within a reasonable time but
in no case less than thirty (30) calendar
days after the amendments are approved,
if they are not in conformity with the
amendments made thereto: Provided
further, That amendments to the Plan shall
be submitted to the BSP within ten (10)
business days from approval of the
amendments by the board of directors. For
purposes of imposing monetary penalties
provided under Subsec. X162.2 for delayed
submission of reports, the amendments to
the Plan shall be considered as Category
A-3 report. The amendments shall be
deemed approved after thirty (30) business
days from date of completion of
requirements.
A copy of the Plan shall be available at
the principal office of the trustee during
regular office hours, for inspection by any
person having an interest in the fund or by
his authorized representative. Upon
request, a copy of the Plan shall be
furnished such interested person.
X410.7
08.12.31
X410.7 Minimum disclosure

requirements
a. Disclosure of UIT Fund investments.
A list of prospective and outstanding
investment outlets shall be made available
by the trustee for the review of all UIT Fund
clients. Such disclosure shall be substantially
in the form as shown in Appendix 62. The
list of investment outlets shall be updated
quarterly.
b. Distribution of investment units.
The trustee may issue such conditions or
rules, as may affect the distribution of
investment units subject to the minimum
conditions enumerated hereunder.
(1) Marketing materials. All printed
marketing materials related to the sale of
a UIT Fund shall clearly state:
(a) The designated name and
classification of the fund and the funds
trustee.
(b) Minimum information regarding:
(i) The general investment policy and
applicable risk profile. There shall be a clear
description/explanation of the general risks
attendant with investing in a UIT Fund,
including risk specific to a type of fund.
Technical terms should likewise be
defined in laymens terms1.
(ii) Particulars or administrative and
marketing details like pricing and cut-off
time.
(iii) All charges made/to be made
against the fund, including trust fees, other
related charges.
(iv) The availability of the Plan Rules
governing the fund, upon the clients
request.
(v) Client and Product Suitability
Standards. Prior to admission, the trustee
shall perform a client profiling process for
all UIT Fund participants under the general
principles on client suitability assessment
to guide the client in choosing investment
outlets that are best suited to his objectives,
risk tolerance, preferences and experience.
The profiling process shall, at the minimum,

require the trustee to obtain client
information through the Client Suitability
Assessment (CSA) form, classify the client
according to his financial sophistication and
communicate the CSA results to the
subject client. The general principles on
CSA shall also require the trustee to adopt
a notice mechanism whereby clients are
advised and/or reminded of the explicit
requirement to notify the trustee or its UIT
Fund marketing personnel of any change in
their characteristics, preferences or
circumstances to enable the trustee to update
clients profile at least every three (3) years.
(c) The participation is not a deposit
account but a trust product; and that any
loss/income is for the account of the
participant; that the trustee is not liable for
losses unless upon willful default, bad faith
or gross negligence.
(d) A balanced assessment of the
possible gains and losses of the UIT Fund
and that the participation does not carry any
guaranteed rate of return, and is not insured
by the PDIC.
(e) An advisory that the investor must
read the complete details of the fund in the
Plan Rules, make his/her own risk
assessment, and when necessary, he/she
must seek independent/professional
opinion, before making an investment.
(2) Evidence of participation. Every
UIT Fund participant shall be given (a) A participating trust agreement.
Such agreement shall clearly indicate that
(1) the UIT Fund is a trust product and not
a deposit account or an obligation of, or
guaranteed, or insured by the trust entity
or its affiliates or subsidiaries; (2) the UIT
Fund is not insured or governed by the
PDIC; (3) due to the nature of the
investment, yields and potential yields
cannot be guaranteed; (4) any loss/income
arising from market fluctuations and price
volatility of the securities held by the UIT
1
Example: "Fixed income securities" does not really mean a guarantee of fixed earnings on the investor's participation;
"Risk-free" government securities which may be sovereign "risk-free" but not interest rate "risk-free"
Part IV - Page 22
X410.7
08.12.31
Fund, even if invested in government

securities, is for the account of the client/
participant; (5) as such, the units of
participation of the investor in the UIT Fund,
when redeemed, may be worth more or be
worth less than his/her initial investment/
contributions; (6) historical performance,
when presented, is purely for reference
purposes and is not a guarantee of similar
future result; and (7) the trustee is not liable
for losses unless upon willful default, bad faith
or gross negligence.
In addition to the agreement, every UIT
Fund participant shall be provided with (1) CSA form to be accomplished during
the profiling process required under the
general principles on CSA. This is designed
to ensure that based on relevant information
about the client, his investment profile is
matched against the investment parameters
of the UIT Fund. At the minimum, client
information shall include personal or
institutional data, investment objective,
investment horizon, investment experience,
and risk tolerance; and
(2) Risk disclosure statement, which in
reference to Subsec. X410.6c, shall
describe the attendant general and specific
risks that may arise from investing in the
UIT Fund. Such statement shall be
substantially similar to the form in Annex
A of Appendix 62.
Both documents shall be signed by the
client/participant and the UIT marketing
personnel who assessed and explained to
the concerned client his/her ability to bear
the risks and potential losses.
(b) A confirmation of participation
and redemption made to/from the fund
that shall contain the following
information:
(i) NAVPu of the fund on day of
purchase/redemption;
(ii) Number of units purchased/
redeemed; and
(iii) Absolute peso or foreign currency
value.
Part IV - Page 22a
No indicative rates of return shall be

provided in the trust participating agreement.
Marketing materials may present relevant
historical performance purely for reference
and with clear indication that past results do
not guarantee similar future results.
(3) A participating trust agreement or
confirmation of contribution/redemption
need not be manually signed by the trustee
or his authorized representative if the
same is in the form of an electronic
document that conforms with the
implementing rules and regulations of
R.A. No. 8792, otherwise known as the
E- Commerce Act.
c. Regular publication/computation/
availability of the funds NAVPu. Trust
entities managing a UIT Fund shall cause at
least the weekly publication of the NAVPu
of such fund in one (1) or more newspaper of
national circulation: Provided, That a pooled
weekly publication of such NAVPu shall be
considered as substantial compliance with
this requirement. The said publication, at the
minimum, shall clearly state the name of the
fund, its general classification, the funds
NAVPu and the moving return on investment
(ROI) of the fund on a year-to-date (YTD) and
year-on-year (YOY) basis.
NAVPu shall be computed daily and
shall be made available to participants and
prospective participants upon request.
d. Marketing personnel. To ensure
the competence and integrity of all duly
designated UIT marketing personnel, all
personnel involved in the sales of these
funds shall be required to undergo
standardized training program in
accordance with the guidelines of this
Subsection. This training program may be
conducted by their respective trust entities
in accordance with the minimum training
program guidelines provided by the Trust
Officers Association of the Philippines
(TOAP). Such training program shall
however be regularly validated by TOAP.
X410.8 - X410.9
07.12.31
X410.8 Exposure limit to single

person/entity. The combined exposure of
the UIT Fund to any entity and its related
parties shall not exceed fifteen percent
(15%) of the market value of the UIT Fund:
Provided, That, a UIT Fund invested,
partially or substantially, in exchange traded
equity securities shall be subject to the
fifteen percent (15%) exposure limit to a
single entity/issuer: Provided, further, That,
in the case of an exchange traded equity
security which is included in an index and
tracked by the UIT Fund, the exposure of the
UIT Fund to a single entity shall be the actual
benchmark weighting of the issuer or fifteen
percent (15%), whichever is higher.
This limitation shall not apply to nonrisk assets as defined by the BSP.
In case the limit is breached due to the
marking-to-market of certain investment/s
or any extraordinary circumstances, e.g.,
abnormal redemptions which are beyond
the control of the trustee, the trustee shall
be given thirty (30) days from the time the
limit is breached to correct the same.
(As amended by Circular No. 577 dated 17 August 2007).
X410.9 Allowable investments and

valuation. UIT Fund investments shall be
limited to bank deposits and the following
financial instruments:
(a) Securities issued by or guaranteed
by the Philippine government, or the
BSP;
(b) Tradable securities issued by the
government of a foreign country, any
political subdivision of a foreign country
or any supranational entity;
(c) Exchange-listed securities;
(d) Marketable instruments that are
traded in an organized exchange;
(e) Loans traded in an organized
market; and
(f) Such other tradable investments
outlets/categories as the BSP may allow:
Provided, That a financial instrument
is regarded as tradable if quoted two-way
prices are readily and regularly available
from an exchange, dealer, broker, industry
group, pricing service or regulatory
agency, and those prices represent
actual and regularly occurring market
transactions on an arms length basis.
Part IV - Page 22b
X410.9 - X410.14
05.12.31
The UIT Fund may avail itself of

financial derivatives instruments solely for
the purpose of hedging risk exposures of the
existing investments of the Fund, provided
these are accounted for in accordance with
existing BSP hedging guidelines as well as
the trust entitys risk management and
hedging policies duly approved by the Trust
Committee and disclosed to participants.
The use of hedging instruments shall
also be disclosed in the Plan as provided
in Item c of Subsec. X410.6 and specified
in the quarterly list of investment outlets
as provided in Item a of Subsec. X410.7.
X410.10 Other related guidelines on
valuation of allowable investments
a. In pricing debt securities,
interpolated yields shall be used for
securities with odd or off-the-run tenors
using the straight-line basis and generally
accepted market convention.
b. In case outstanding UIT Fund
investments may deteriorate in quality, i.e.,
no longer tradable as defined under Subsec.
X410.9, the trustee shall immediately
provision to reflect fair value in accordance
with generally accepted accounting
principles or as may be prescribed by the
BSP. If no fair value is available, the
instrument shall be assumed to be of no
market value.
X410.11 Unit Investment Trust Fund
administration support
a. Backroom operations. Administrative
rules on backroom under Sec. X421 shall
be applicable to UIT Fund. Adequate
systems to support the daily marking-tomarket of the funds financial instruments
shall be in place at all times. In this
respect, a daily reconcilement of the
funds resultant marked-to-market value
with the unrealized market losses and
gains (respective contra asset balance)
versus the book value of the fund for
investments in financial instruments shall
be done and all differences resolved

within the day.
b. Custody of securities. Investments in
securities of a UIT Fund shall be held for
safekeeping by BSP accredited third party
custodians which shall perform independent
marking-to-market of such securities.
X410.12 Counterparties
a. Dealings with related interests/bank
proper/holding company/subsidiaries/
affiliates and related companies. A trustee
of a UIT Fund shall be transparent at all
times and maintain an audit trail for all
transactions with related parties or entities.
The trustee shall observe the principle of
best execution and no purchase/sale shall
be made with related counterparties without
considering at least two (2) competitive
quotes from other sources.
b. Accreditation of counterparties. The
Fund shall only invest with approved
counterparties qualified in accordance with
the policy duly approved by the Trust
Committee. Counterparties shall be subject
to appropriate limits in accordance with
sound risk management principles.
X410.13
Foreign
currencydenominated Unit Investment Trust Funds
UIT Fund denominated in any acceptable
foreign currency provided under existing
BSP rules and regulations may be
established. Such fund may only be invested
in allowable investments denominated in
pesos or any acceptable foreign currency as
expressly allowed under the funds plan rules
and properly disclosed to fund participants.
X410.14 Exemptions from statutory
and liquidity reserves, single borrower's
limit, DOSRI. The provisions on reserves,
single borrowers limit and DOSRI ceilings
under Subsec. X405.5, and Secs. X303,
X330 and X331, respectively, applicable to
trust funds in general shall not be made
applicable to UIT Funds.
Part IV - Page 23
X411 - X411.3
05.12.31
Sec. X411 Investment Management

Activities. The conduct of investment
management activities shall be subject to the
following regulations.
X411.1 Minimum documentary
requirements. An investment management
account shall be covered by a written
document establishing such account, as
follows:
a. In the case of accounts created by
corporations, business firms, organizations
or institutions, the voluntary written
agreement or indenture entered into by the
parties, accompanied by a copy of the board
resolution or other evidence authorizing the
establishment of and designating the
signatories to, the investment management
account.
b. In the case of accounts created by
individuals, the voluntary written agreement
or indenture entered into by the parties.
The voluntary written agreement or
contract shall include the following
minimum provisions:
(1) Pre-numbered contractual agreement
form;
(2) Title or nature of contractual
agreement in noticeable print;
(3) Legal capacities, in noticeable print,
of parties sought to be covered;
(5) The initial amount of funds and/or
value of securities subject of the arrangement
delivered to the investment manager;
(6) Statement in underlined noticeable
print that:
(a) The agreement is an agency and not
a trust agreement. As such, the client shall
at all times retain legal title to funds and
properties subject of the arrangement;
(b) The arrangement does not guaranty
a yield, return or income by the investment
manager. As such, past performance of the
account is not a guaranty of future
performance and the income of investments
Part IV - Page 24
can fall as well as rise depending on

prevailing market conditions; and
(c) The investment management
agreement is not covered by the PDIC and
that losses, if any, shall be for the account
of the client;
(7) Duties and powers of the
investment manager;
(8) Liabilities of the investment
manager;
(9) Reports to the client;
(10) The amount or rate of the
compensation of the investment manager;
(11) Terms and conditions governing
withdrawals from the account;
(12) Termination of contractual
arrangement; and
(13) Disclosure requirements for
transactions requiring prior authority and/
or specific written investment directives
from the client.
A sample investment management
agreement which conforms to the foregoing
requirements is shown as Appendix 24.
X411.2 Minimum size of each
investment management account. No
investment management account shall be
accepted or maintained for an amount less
than P1.0 million. An investment
management account reduced to less than
P1.0 million due to investment losses shall
be exempt from this requirement.
X411.3 Commingling of funds. Two
(2) or more individual investment
management accounts shall not be
commingled except for the purpose of
investing in government securities or in duly
registered commercial papers: Provided,
That the participation of each of the
aforementioned accounts in the commingled
account shall not be less than P1.0 million:
Provided, further, That such commingling
has been duly disclosed and specifically
agreed in writing by the clients.
X411.4 - X411.5
05.12.31
X411.4 Lending and investment

disposition. Assets received in investment
management capacity shall be administered
in accordance with the terms of the
instrument creating the investment
management relationship.
When an investment manager is granted
discretionary powers in the investment
disposition of investment management
funds and unless otherwise specifically
enumerated in the agreement or indenture
and directed in writing by the client, loans
and investments of the fund shall be limited
to:
of the Philippines or loans against such
b. Loans fully guaranteed by the
Republic of the Philippines as to the
payment of principal and interest;
c. Loans fully secured by a hold-out
other banks, or of deposit substitutes of the
bank, or mortgage and chattel mortgage
bonds issued by the investment manager;
and
d. Loans fully secured by real estate or
chattels in accordance with Sections 37 and
38 of R.A. No. 8791, and subject to the
requirements of Sections 39 and 40 of R.A.
No. 8791.
The specific directives required under
this Subsection shall consist of the following
information:
(1) The transaction to be entered into;
(2) Borrowers name;
X411.5 Transactions requiring prior
authority. An investment manager shall not
undertake any of the following transactions
for the account of a client, unless prior to

its execution, such transaction has been fully
disclosed and specifically authorized in
writing by the client:
a. Lend, sell, transfer or assign money
or property to any of the departments,
directors, officers, stockholders, or employees
of the investment manager, or relatives
within the first degree of consanguinity or
affinity, or the related interests of such
directors, officers and stockholders; or to
any corporation where the investment
manager owns at least fifty percent (50%)
representative capacity;
b. Purchase or acquire property or debt
instruments from any of the departments,
directors, officers, stockholders, or
employees of the investment manager, or
relatives within the first degree of
interests of such directors, officers and
stockholders; or from any corporation
where the investment manager owns at least
fifty percent (50%) of the subscribed capital
or voting stock in its own right and not as
c. Invest in equities of, or in securities
underwritten by, the investment manager or
a corporation in which the investment
manager owns at least fifty percent (50%)
representative capacity; and
d. Sell, transfer, assign or lend money
or property from one trust, fiduciary or
investment management account to another
trust, fiduciary or investment management
account except where the investment is in
any of those enumerated in Items "a" to "d"
of Subsec. X411.4.
Directors, officers, stockholders, and
their related interests covered by this
Subsection shall be those considered as
such under existing regulations on loans to
DOSRI in Part III-E of this Manual. The
Part IV - Page 25
X411.5 - X411.9
05.12.31
procedural and reportorial requirements in

said regulations shall also apply.
The disclosure required under this
Subsection shall consist of the following
(1) The transaction to be entered into;
(2) Identities of the parties involved in the
transaction and their relationships (shall not
apply to Item "d" of this Subsection);
The above information shall be made
known to clients in a separate instrument or
in the very instrument creating the
investment management relationship.
X411.6 Title to securities and other
properties. Securities such as promissory
notes, shares of stocks, bonds and other
properties of the portfolio shall be issued or
registered in the name of the principal or of
the investment manager: Provided, That in
case of the latter, the instrument shall indicate
that the investment manager is acting in a
representative capacity and that the
principals name is disclosed thereat.
X411.7 Ceilings on loans. Loans
funded by investment management accounts
shall be subject to the DOSRI ceilings
imposed on banks and IHs under Secs. X330
and X331. For purposes of determining
compliance with said ceilings, the total
amount of said loans granted by the trust
department and the bank proper to the same
person, firm or corporation shall be
combined.
methodology. Investment management
accounts shall be operated and accounted
for in accordance with the following:
a. The investment manager shall
administer, hold, or manage the fund or
property in accordance with the instrument
creating the investment management
relationship; and
Part IV - Page 26
b. Funds or property of each client

shall be accounted separately and distinctly
from those of other clients herein referred
to as individual account accounting.
X411.9 Tax-exempt individual
investment management accounts. The
following shall be the features/requirements
of investment management accounts of
individuals which may be exempted from
the twenty percent (20%) final tax under
Section 24(B)(1) of R.A. No. 8424 (The Tax
Reform Act of 1997):
investment management agreements
contracted on or after 03 January 2000;
b. The investment management
agreement shall only be between individuals
who are Filipino citizens or resident aliens and
investment manager-banks. The agreement
shall be non-negotiable and non-transferable;
c. The minimum amount of investment
for an investment management account shall
be P1.0 million;
d. The investment management
agreement shall indicate that pursuant to
Section 24(B)(1) of R.A. No. 8424, interest
income of the investment management funds
derived from investments in interest-bearing
instruments (e.g., time deposits, government
securities, loans and other debt instruments)
which are otherwise subject to the twenty
percent (20%) final tax, shall be exempt from
said final tax provided the funds are held
under investment management by the
investment manager for at least five (5) years.
If said funds are held by the investment
manager for a period less than five (5) years,
interest income shall be subject to a final tax
which shall be deducted and withheld from
the proceeds of the investment management
account based on the following schedule
Holding Period
Four (4) years to less than five (5) years
Three (3) years to less than four (4) years
Rate of Tax
5%
12%
20%
X411.9 - X412.3
05.12.31
Necessarily, the investment management

agreement shall clearly indicate the date
when the investment manager actually
received the funds which shall serve as basis
for determining the holding period of the
funds;
e. The investment manager may accept
additional funds for inclusion in investment
management accounts which have been
established as tax-exempt under R.A. No.
8424. However, the receipt of additional
funds shall be properly documented by
indicating that they are part of existing taxexempt investment management accounts
and that the interest income of the additional
funds derived from investments in interestbearing instruments shall be exempt from the
twenty percent (20%) final tax under the same
conditions mentioned in the preceding item.
The document shall also indicate the date
when the additional funds were received by
the investment manager-bank to serve as basis
for determining the minimum five (5)-year
holding period for tax exemption purposes
of the additional funds; and
f. Tax-exempt individual investment
management accounts established under this
Subsection shall be subject to the provisions
of Subsecs. X411.1(b) and X411.2 up to
X411.8.
Sec. X412 FCDU/EFCDU Trust Accounts
Only a bank with authority to operate a
foreign currency deposit unit (FCDU) or an
expanded foreign currency deposit unit
(EFCDU) under R.A. No. 6426, as amended,
may accept foreign currency-denominated
trust accounts.
X412.1 Banks with trust authority
A bank authorized to engage in trust
business under Section 79 of R.A. No. 8791,
which is also authorized to operate an FCDU
or EFCDU under R.A. No. 6426, as amended,
shall include FCDU/EFCDU trust accounts
among those managed or administered by
its trust department under the responsibility
of the board of directors, the trust

committee and the trust officer.
X412.2 Banks without trust
authority. A bank not authorized to
engage in the trust business under Section
79 of R.A. No. 8791, which accepts FCDU/
EFCDU trust accounts under R.A. No. 6426,
as amended, shall manage such trust
accounts in its FCDU/EFCDU as an exception
to Item "a" of Subsec. X406.1. Pursuant to
the provisions of Subsec. X406.4, the board
of directors shall be responsible for the
proper administration and management of
FCDU/EFCDU trust accounts: Provided, That
the board of directors may, by action duly
entered in the minutes, constitute an FCDU
or EFCDU trust committee to which the
administration and management of such
accounts may be delegated.
The FCDU or EFCDU trust committee
shall be composed of three (3) directors,
who shall be appointed on a regular
rotation basis, one of whom shall be
designated as chairman. The three (3)
directors shall meet the qualification
requirements under Subsec. X406.3 and
shall not be operating officers or members
of the audit committee of the bank.
X412.3 Additional deposit for the
faithful performance of trust duties. A
bank authorized to engage in trust business
that accepts FCDU/EFCDU trust accounts
shall deposit with the BSP additional eligible
government securities under Subsec .
X405.2 as security for the faithful
performance of trust duties equivalent to
at least one percent (1%) of the value of
the FCDU/EFCDU trust assets based on the
average of the month-end balances of such
assets during the immediately preceding
quarter as converted in the local currency
at the prevailing foreign exchange rate.
Such securities shall be deposited within
thirty (30) banking days after the end of
every calendar quarter.
Part IV - Page 27
X412.4 - X414.1
05.12.31
X412.4 Liquidity requirement for

FCDU/EFCDU Common Trust Funds. In
addition to the basic security deposit, each
FCDU/EFCDU CTF shall be required to set
up at least ten percent (10%) of the book
value of the fund for liquidity purposes:
Provided, That such liquidity requirement
shall be in any or a combination of the
following: (a) readily marketable foreign
currency securities with maturity of not
more than three (3) years; and (b) foreign
currency deposits with foreign banks:
Provided, further, That the liquidity
requirement of EFCDUs may, in addition to
the foregoing, also be in the form of foreign
currency deposits with other EFCDUs or
resident offshore banking units. The base
amount of the liquidity requirement shall
be the average of the month-end balances
of the CTFs within a given quarter.
X412.5 Applicability of rules and
regulations. Unless otherwise revised by
the provisions of this Section, the rules and
regulations governing the administration of
trust accounts, including CTFs, shall be
observed, whether the FCDU/EFCDU trust
accounts are administered by the banks
trust department or by its FCDU/EFCDU.
Also applicable are rules and regulations
on the operations of FCDUs/EFCDUs that
include, among other things, regulations on
acceptable foreign currencies, eligible and
ineligible foreign currency sources; foreign
currency cover requirements; and allowable
loans and investments.
Sec. X413 Required Surplus. A bank
fiduciary business shall, before the
declaration of dividends, carry to surplus
at least ten percent (10%) of its net profits
realized out of its trust, investment
management and other fiduciary business
since the last preceding dividend declaration
until the surplus shall amount to twenty
percent (20%) of its authorized capital stock
Part IV - Page 28
and no part of such surplus shall at any time

be paid out in dividends but losses accruing
in the course of its business may be charged
against surplus.
B. INVESTMENT
MANAGEMENT ACTIVITIES
Sec. X414 Authority to Perform Investment
Management. Banks may be authorized by
the Monetary Board to act as managing agent,
adviser, consultant or administrator of
investment management/advisory/consultancy
account under Section 53.4 of R.A. No. 8791.
However, such authority shall not be construed
to include the authority to engage in trust and
other fiduciary business under Chapter IX of
R.A. No. 8791.
If a bank is found to engage in
unauthorized investment management
activities, the Monetary Board may impose
administrative sanctions against such bank or
its principal officers and/or majority
stockholders or proceed against them in
accordance with law.
The Monetary Board may take such action
as it may deem proper such as, but may not
be limited to, requiring the transfer or turnover
of any investment management account to
duly incorporated and licensed entities of the
choice of the client.
A bank not authorized to engage in
investment management activities shall not
advertise or represent itself as being engaged
in investment management activities or
represent itself as investment manager or use
words of similar import.
X414.1 Prerequisites for engaging in
investment management activities. A bank
before it may engage in investment
management activities shall comply with the
a. The bank has been duly licensed by
the BSP or created by special law or charter.
b. The articles of incorporation or
charter of the bank shall include among its
X414.1 - X415.3
05.12.31
powers or purposes the authority to engage

in investment management activities.
c. The by-laws of the bank shall
include, among other things:
conduct the investment management
activities of the institution;
(2) The creation of an investment
management committee, the appointment
of an investment management officer and
subordinate officers of the investment
management department; and
d. The applicant shall also meet the
following additional requirements:
(1) It has continuously complied with
its net worth-to-risk assets ratio, liquidity
floor, and ceilings on DOSRI loans for the
last sixty (60) days immediately preceding
the date of application;
reserve deficiency against deposit
liabilities and deposit substitutes during the
last eight (8) weeks immediately
preceding the date of application; and
(3) It has shown substantial compliance
with other pertinent laws, rules and
regulations, policies and instructions of the
BSP; and has not been cited for serious
violations or exceptions affecting its
solvency, liquidity and profitability.
regulations, shall be maintained up to the
that fails in this respect shall be required
to show compliance for another test period
of the same duration.
A bank authorized to engage in
investment management activities shall,
before engaging in actual operations,
submit to the BSP the following:
a. Government securities acceptable

to the BSP amounting to P500,000 as
minimum basic security deposit for the
faithful performance of investment
management duties required under
Subsec. X415.1;
b. Organization chart of the
investment management department
which shall carry out the investment
management activities of the bank; and
c. Names and positions of individuals
designated as chairman and members of
the investment management committee,
investment management officer and other
subordinate officers of the investment
management department.
Sec. X415 Security for the Faithful
Performance of Investment Management
Activities
X415.1 Basic security deposit. A
bank authorized to engage in investment
management activities shall deposit with
the BSP eligible government securities as
security for the faithful performance of its
investment management activities
equivalent to at least one percent (1%) of
the book value of the total investment
management assets: Provided, That at no
time shall such deposit be less than P500,000.
Scripless securities under the RoSS
system of the BTr may be used as basic
security deposit for the faithful performance
of investment management activities using
the guidelines enumerated in Appendix 34.
X415.2 Eligible securities. Securities
enumerated in Subsec. X405.2 shall be eligible
as security deposit for faithful performance
of investment management activities.
X415.3 Valuation of securities and
basis of computation of the basic security
deposit requirement. For purposes of
determining compliance with the basic
security deposit under this Section, the
amount of securities so deposited shall be
Part IV - Page 29
X415.3 - X415.4
08.12.31
based on their book value, that is, cost as

increased or decreased by the corresponding
discount or premium amortization.
The base amount for the basic security
deposit shall be the average of the month-end
balances of the total assets of investment
management funds of the immediately
preceding calendar quarter.
The investment manager shall have thirty (30)
calendar days after the end of every calendar
quarter within which to deposit with the BSP
securities required under this Section.
The following sanctions shall be
imposed for any deficiency in the basic
security deposit for the faithful performance
of investment management activity:
a. On the bank:
i. Monetary penalty/ies:
Offense
Trust
Third and
First
Second
Asset Size
TBs/RBs with
Limited Trust
subsequent
offense(s)
P300.00
P400.00
P500.00
P600.00
P700.00
P800.00
P1,000.00
P1,250.00
P1,500.00
P2,000.00 P3,000.00
P4,000.00
P5,000.00
P7,000.00
Authority
Up to
Penalty per Calendar Day
UBs/KBs/TBs with Full Trust Authority and with Trust Assets of
P500
million
Above
P500
million
but not
exceeding
P1 billion
Above
P1 billion
but not
exceeding
P10 billion
Above
P10 billion
but not
P6,000.00
exceeding
P50 billion
Above
P50 billion
P8,000.00 P9,000.00 P10,000.00
ii. Non-monetary penalty beginning

with the third offense (all banks) - Prohibition
against the acceptance of new investment
management accounts and from renewing
expiring investment management
contracts up to the time the violation is
corrected.
b. On the Head of the Investment
Management Department and/or other
officers responsible for the deficiency/
non-compliance:
(1) First offense warning that
subsequent violations shall be dealt with
more severely;
(2) Second offense written reprimand
with a stern warning that subsequent
violations shall be subject to suspension;
(3) Third offense thirty (30) calendar
day-suspension without pay; and
(4) Subsequent offense(s) sixty (60)
calendar day-suspension without pay.
For purposes of determining the
frequency of the violation, the banks
compliance profile for the immediately
preceding three (3) years or twelve (12)
quarters will be reviewed: Provided, That
for purposes of determining appropriate
penalty on the head of the Investment
Management Department and/or other
responsible officer(s), any offense committed
outside the preceding three (3) year or
twelve (12) quarter - period shall be
considered as the first offense: Provided,
further, That in the case of the head of the
Investment Management Department, all
offenses committed by him in the past as
the head of the Investment Management
Department of other institution(s) shall also
be considered: Provided, finally, That if the
offense cannot be attributed to any other
officer of the bank, the head of the
Investment Management Department
shall be automatically held responsible
since the ultimate responsibility for
ensuring compliance with the regulation
rests upon him, as evidence may warrant.
(As amended by Circular Nos. 617 dated 30 July 2008 and
585 dated 15 October 2007)
Part IV - Page 30
X416 - X421
07.12.31
Sec. X416 Organization and Management

The provisions of Sec. X406 up to Subsec.
X406.9 shall govern the organization and
management of banks without trust license
which are engaged in investment
management activities only. The following
terms shall, however, be used:
a. Investment management activities,
in lieu of trust and other fiduciary business;
b. Investment management accounts,
in lieu of trust and other fiduciary accounts;
c. Investment management committee,
in lieu of trust committee;
d. Investment management officer, in
lieu of trust officer; and
e. Investment management department,
in lieu of trust department.
Sec. X417 Non-Investment Management

Activities. The provisions of Sec. X407 shall
apply in determining non-investment
management activities except that the terms
trust, other fiduciary, trustee and fiduciary
shall be disregarded.
Sec. X418 Unsound Practices. The
provisions of Sec. X408 shall govern the
unsound practices
management accounts.
for
investment
Sec. X419 Conduct of Investment

Management Activities. The provisions of
Sec. X411 shall govern the conduct of
investment management activities of a
bank without a trust license.
Sec. X420 Required Surplus. A bank
authorized to engage in investment
management activities shall, before the
declaration of dividends, carry to
surplus at least ten percent (10%) of
its net profits realized out of its
investment management activities
since the last preceding dividend
declaration until the surplus shall amount
to twenty percent (20%) of its authorized
capital stock and no part of such surplus
shall at any time be paid out in dividends,
but losses accruing in the course of its
business may be charged against surplus.
C. GENERAL PROVISIONS
Sec. X421 Books and Records. The banks
trust department or investment management
Part IV - Page 30a
X421 - X423
06.12.31
department shall keep books and records

on trust, other fiduciary and investment
management accounts separate and distinct
from the books and records of its other
businesses and shall follow the Manual of
Accounts for Trust and Other Fiduciary
Activities prescribed by the BSP.
Each trust, other fiduciary or
investment management account shall
have a record separate from all other
accounts except only in the case of CTFs
where the trustee can maintain common
records utilizing pooled fund accounting
method for each fund: Provided, That the
trustee shall clearly indicate in the records
the trustors owning participation in the CTF
and the extent of the interest of such
trustors.
Books and records shall contain full
information relative to each trust, other
fiduciary or investment management
account and shall be supported by duplicate
signed copies of related documents. Said
records and duplicate signed copies of
related documents shall be compiled and
kept as to allow inspection by BSP
examiners and submission of information
or reports as may be required by
competent authorities.
The banks trust department or
investment management department shall
maintain separate general ledger accounts
and other relevant sub-accounts for taxexempt individual trust accounts, CTFs and
individual management accounts
established under Section 24(B)(1) of R.A.
No. 8424 and Subsecs. X409.8, X411.9,
and Item 8 of Appendix 60. The banks
trust department or investment
management department shall also adopt
appropriate systems, internal control
procedures and audit trail mechanisms to
ensure that the correct amount of final tax
is withheld or exempted from such
accounts.
Sec. X422 Custody of Assets. All moneys,

properties or securities received by a bank
in its capacity as trustee, fiduciary, or
investment manager shall be kept
physically separate and distinct from the
assets of its other businesses and shall be
under the joint custody of at least two (2)
persons, one of whom shall be an officer
of the trust or investment management
department, designated for that purpose by
the board of directors.
The investment of each trust, other
account shall be kept physically separated
from those of other trust, other fiduciary or
investment management accounts, and
adequately identified as the assets or
property of the relevant account.
Sec. X423 Fees and Commissions. A bank
acting as trustee, fiduciary or investment
manager shall be entitled to reasonable fees
and commissions which shall be
determined on the basis of the cost of
services rendered and the responsibilities
assumed: Provided, That where the trustee,
fiduciary or investment manager is acting
as such under appointment by a court, the
compensation shall be that allowed or
approved by the court: Provided, further,
That in the case of CTFs, the fee which a
trustee may charge each participant shall
be fully disclosed by the trustee in the CTF
plan, prospectus, flyers, posters and in all
forms of advertising materials to market the
funds and in the documents given to clients
as proof of participation in the fund. In no
case shall such fees and commissions be
based on the excess of the income of the
trust, other fiduciary or investment
management funds over a certain amount
or percentage.
No trustee, fiduciary or investment
manager shall solicit or receive rebates on
commissions, fees and other payments for
the services rendered to the trust, other
Part IV - Page 31
X423 - X425.1
06.12.31

account or beneficiaries of the trust, other
account by stockbrokers, real estate
brokers, insurance agents and similar
persons or entities unless the rebates, fees
and other payments shall accrue to the
benefit of the trust, other fiduciary or
investment management account or the
beneficiaries thereof.
Officers and employees of the trust
department or investment management
department of banks, while serving as such,
shall be prohibited from retaining any
compensation for acting as co-trustee or
fiduciary in the administration of a trust,
other fiduciary or investment management
account.
No bank shall collect, for its own
account, referral and/or arrangement fees,
or any other fees that take the nature of
payment to the bank from whatever source,
in connection with loans sourced from trust
funds managed by its trust department:
Provided, That if such fees are collected, the
same shall be properly disclosed to the
trustor, and shall accrue to the benefit of the
trust, in accordance with the provisions of
Secs. X401 and X407.
Sec. X424 Taxes. The terms and conditions

of trust, other fiduciary or investment
management agreements including CTF plans
shall contain provisions regarding the
applicability of regulations governing
taxation on the income of trust, other
accounts. For this purpose, the trustee,
fiduciary or investment manager shall
maintain adequate records and shall include
information such as the amount of final
income tax withheld at source and the
amount withheld by the trustee, fiduciary or
investment manager in the periodic reports
submitted to trustors, beneficiaries,
principals and other parties in interest.
Part IV - Page 32
With respect to tax-exempt CTFs,

individual trust and investment
management accounts established under
Section 24(B)(1) of R.A. No. 8424, the
banks trust department or investment
management department shall be
responsible for obtaining the tax-exemption
certifications which may be required by the
BIR for the interest-bearing instruments
where the CTFs, individual trust funds and
investment management funds will be
invested. Likewise, the banks shall ensure
that the correct amount of final tax on the
interest income on the interest-bearing
instruments is withheld/deducted from the
proceeds from the CTF participation, trust
or investment management account and
remitted to the BIR in the event said tax
becomes due such as when funds are
withdrawn before the required five (5)-year
holding period or when corporations
happen to invest in the tax-exempt trust
instruments created within the purview of
R.A. No. 8424.
Sec. X425 Reports Required
X425.1 To trustor, beneficiary,
principal. A bank acting as trustee,
fiduciary or investment manager shall
render reports on the trust, other
accounts to the trustor, beneficiary,
principal or other party in interest or the
court concerned or any party duly
designated by the court order, as the case
may be, under the following guidelines:
a. The reports shall be in such forms
as to apprise the party concerned of the
significant developments in the
administration of the account and shall
consist of:
(1) A balance sheet;
(2) An income statement;
(3) A schedule of earning assets of the
account; and
(4) An investment activity report.
X425.1 - X426.2
05.12.31
b. Items (3) and (4) above shall include

at least the following:
(1) Name of issuer or borrower;
(2) Type of instrument;
(3) Collateral, if any;
(4) Amount invested;
(5) Earning rate or yield;
(6) Amount of earnings;
(7) Transaction date; and
(8) Maturity date;
c. The reports shall be prepared in
such frequency as required under the
agreement but shall not in any case be
longer than once every quarter; and
d. The reports shall be made available
to clients not later than twenty (20)
calendar days from the end of the reference
date/period in Item "c" above.
X425.2 To the Bangko Sentral. A
bank acting as trustee, fiduciary or
investment manager shall submit periodic
reports prescribed by the appropriate
department of the SES on the banks trust and
other fiduciary business and investment
management activities within the deadlines
indicated in Appendix 6.
X425.3 Post-Bond Flotation Report
The LGU or its representative or its trustee
bank, as the case may be, shall submit to
the BSP the post-bond flotation report
required in the Revised Guidelines on the
Flotation of Bonds by LGUs (Without
National Government Guarantee)
(Appendix 57) that will indicate the actual
amount of the issue as well as the final terms
and conditions of the issue within the
deadline indicated in Appendix 6; and such
other reports as may be required by the BSP.
Sec. X426 Audits
X426.1 Internal audit. The banks
internal auditor shall include among his
functions, the conduct of periodic audits of
the trust department or investment

management department at least once every
twelve (12) months. The board of directors,
in a resolution entered in its minutes, may
also require the internal auditor to adopt a
suitable continuous audit system to
supplement and/or to replace the periodic
audit. In any case, the audit shall ascertain
whether the institutions trust and other
fiduciary business and investment
management activities have been
administered in accordance with laws, BSP
rules and regulations, and sound trust or
fiduciary principles.
X426.2 External audit. The trust and
management activities of a bank shall be
included in the annual financial audit by
independent external auditors required
under Sec. X164.
The audit of the assets and
accountabilities of the trust department/
investment management department of a
bank authorized to engage in trust and other
fiduciary business, investment management
activities, which shall cover at the
minimum a review of the trust/investment
management operations, practices and
policies, including audit and internal control
system, shall be subject to auditing
standards to the extent necessary to express
an opinion on the financial statements.
The audit of the trust/investment
management department of a bank
fiduciary business/investment management
activities shall be covered by a separate
supplemental audit report to be submitted
to the banks board of directors and to the
BSP within the prescribed period
containing, among others things, the
statements of condition of trust funds and
managed funds and the related statements
of earnings of both funds presented
separately.
Part IV - Page 33
X426.3 - X441
07.12.31
X426.3 Board action. A report of the

foregoing audits, together with the actions
thereon, shall be noted in the minutes of the
board of directors of the bank.
Sec. X427 Authority Resulting from
Merger or Consolidation. In merger of FIs,
the authority to engage in trust and other
fiduciary business and in investment
management activities shall continue to be
in effect if the surviving institution has such
authority and the same has not been
withdrawn by the BSP. In case the surviving
institution does not have previous authority
but desires to engage in trust and other
fiduciary business and in investment
management activities, it shall secure the
prior approval of the Monetary Board to
engage in such business as part of its
application for merger to enable it to
incorporate such among its powers or
purpose clause in its articles of
incorporation, articles of merger, by-laws
and such other pertinent documents.
In the consolidation of FIs where the
resulting entity is an entirely new one, it shall
secure from the Monetary Board an authority
to engage in trust and other fiduciary
business or in investment management
activities before it may engage in such
business.
Sec. X428 Receivership. Whenever a
receiver is appointed by the Monetary
Board for a bank which is authorized to
or in investment management activities,
the receiver shall, pursuant to the
instructions of the Monetary Board, proceed
to close the trust, other fiduciary and
investment management accounts
promptly and/or transfer all other accounts
to substitute trustees, fiduciaries or
investment managers acceptable to the
trustors, beneficiaries, principals or other
parties in interest: Provided, That where the
trustee, fiduciary or investment manager is
Part IV - Page 34
acting as such under appointment by a

court, the receiver shall proceed pursuant
to the instructions of said court.
Sec. X429 Surrender of Trust or
Investment Management License. Any
bank which has been authorized to engage
in trust and other fiduciary business or in
investment management activities and
which intends to surrender said authority
shall file with the BSP a certified copy of
the resolution of its board of directors
manifesting such intention. The appropriate
department of the SES shall then conduct
an examination of the banks trust, other
fiduciary business and investment
management activities. If the bank is found
to have satisfactorily discharged its duties
and responsibilities as trustee, fiduciary or
investment manager, and has provided for
the orderly closure or transfer of its trust,
accounts, the Monetary Board, on the
basis of the recommendation of the
examining department, shall order the
withdrawal of the banks authority to
engage in trust and other fiduciary
management activities.
Sec. X441 Securities Custodianship and
Securities Registry Operations. The
govern securities custodianship and
securities registry operations of banks.
The guidelines to implement the
Violation of any provision of the
guidelines in Appendix 68 shall be subject
to the sanctions/penalties under Subsec.
X441.29.
(As amended by M-2007-002 dated 23 January 2007, M-2006009 dated 06 July 2006, M-2006-002 dated 05 June 2006 and
Circular No. 524 dated 31 March 2006)
X441.1 - X441.2
05.12.31
X441.1 Statement of policy. It is the

policy of the BSP to promote the protection
of investors in order to gain their confidence
and encourage their participation in the
development of the domestic capital market.
Therefore, the following rules and
regulations are promulgated to enhance
transparency of securities transactions with
the end in view of protecting investors.
X441.2 Applicability of this regulation
This regulation shall govern securities
custodianship and securities registry
operations of banks and NBFIs under BSP
supervision. It shall cover all their
transactions in securities as defined in

Section 3 of the Securities Regulation Code
(SRC), whether exempt or required to be
registered with the SEC, that are sold,
borrowed, purchased, traded, held under
custody or otherwise transacted in the
Philippines where at least one (1) of the
parties is a bank or an NBFI under BSP
supervision. However, this regulation
shall not cover the operations of stock and
transfer agents duly registered with the
SEC pursuant to the provisions of SRC
Rule 36-4.1 and whose only function is
to maintain the stock and transfer book
for shares of stock.
Part IV - Page 34a
X441.3 - X441.5
05.12.31
X441.3 Prior Bangko Sentral

approval. Banks may act as securities
custodian and/or registry only upon prior
Monetary Board approval.
A bank desiring to act as securities
custodian and/or registry shall file an
application with the appropriate
the BSP. The application shall be signed
by the highest ranking officer of the bank
and shall be accompanied by a certified
true copy of the resolution of the banks
board of directors authorizing the bank
to engage in securities custodianship and/
or registry and, in the case of a branch of
a foreign bank, approval by its highest
ranking regional officer with proof of
delegated authority from the banks board
of directors.
for a securities custodian/registry
a. It must be a bank;
b. It must have complied with the
minimum capital accounts required under
existing regulations, as follows:
(1) Domestic banks. Its adjusted capital
account is at least equal to the amount
required under Subsec. X106.1 or the
amount required for TBs operating in Metro
Manila, whichever is higher.
(2) Branches of foreign banks. The
minimum capital required under Subsec.
X121.4.
c. Its risk-based capital adequacy ratio
is not lower than twelve percent (12%) at
the time of filing the application;
d. It must have a CAMELS composite
rating of at least 4 (as rounded off) in the
last regular examination;
e. It must have in place a
comprehensive risk management system
approved by its board of directors (or
equivalent management committee in the
case of foreign bank branches) appropriate
to its operations characterized by a clear

limits, effective internal control and
reporting systems. In this connection, a
manual of operations (which includes
custody and/or registry operations) and
other related documents embodying the
risk management system must be
submitted to the appropriate supervising
and examining department at the time of
application for authority and within thirty
(30) days from updates;
f. It must have adequate technological
capabilities and the necessary technical
expertise to ensure the protection, safety and
integrity of client assets, such as:
(1) It can maintain an electronic registry
dedicated to recording of accountabilities to
its clients; and
(2) It has an updated and
comprehensive computer security system
covering
system,
network
and
telecommunication facilities that will:
(a) limit access only to authorized users;
(b) preserve data integrity; and
(c) provide for audit trail of transactions.
g. It has complied, during the period
application, with the following:
(1) ceilings on credit accommodation to
DOSRI; and
(2) single borrowers limit.
h. It has no reserve deficiencies during
the eight (8) weeks immediately preceding
the date of application;
i. It has set up the prescribed
allowances for probable losses, both general
and specific, as of date of application;
j. It has not been found engaging in
unsafe and unsound practices during the last
six (6) months preceding the date of
application;
k. It has generally complied with laws,
rules and regulations, orders or instructions
Part IV - Page 35
X441.5 - X441.8
05.12.31
of the Monetary Board and/or BSP

Management;
l. It has submitted additional
documents/information which may be
requested by the appropriate supervision and
examination department, such as, but not
limited to:
(1) Standard custody/registry agreement
and other standard documents;
(2) Organizational structure of the
custody/registry business;
(3) Transaction flow; and
(4) For those already in the custody or
registry business, a historical background for
the past three (3) years;
m. It shall be conducted in a separate
unit headed by a qualified person with at
least two (2) years experience in custody/
registry operations; and
n. It can interface with the clearing
and settlement system of any recognized
exchange in the country capable of
achieving a real time gross settlement of
trades.
X441.6 Functions and responsibilities
of a securities custodian. A securities
custodian shall have the following basic
functions and responsibilities:
a. Safekeeps the securities of the client;
b. Holds title to the securities in a
nominee capacity;
c. Executes purchase, sale and other
instructions;
d. Performs at least a monthly
reconciliation to ensure that all positions are
properly recorded and accounted for;
e. Confirms tax withheld;
f. Represents clients in corporate
actions in accordance with the direction
provided by the securities owner;
g. Conducts mark-to-market valuation
and statement rendition;
h. Does earmarking of encumbrances
or liens such as, but not limited to, Deeds
of Assignment and court orders;
Part IV - Page 36
In addition to the above basic functions,

it may perform the following value-added
service to clients:
i. Acts as a collecting and paying
agent: Provided, That the management of
funds that may be collected shall be clearly
defined in the custody contract or in a
separate document or agreement attached
thereto: Provided, further, That the
custodian shall immediately make known
to the securities owner all payments made
and collections received with respect to the
securities under custody; and
j. Securities borrowing and lending
operations as agent.
X441.7 Functions and responsibilities
of a securities registry
a. Maintains an electronic registry book;
b. Delivers
confirmation
of
transactions and other documents within
agreed trading periods;
c. Issues registry confirmations for
transfers of ownership as it occurs;
d. Prepares regular statement of
securities balances at such frequency as may
be required by the owner on record but not
less frequent than every quarter; and
e. Follows
appropriate
legal
documentation to govern its relationship
with the Issuer.
X441.8 Protection of securities of the
customer. A custodian must incorporate the
following procedures in the discharge of its
functions in order to protect the securities
of the customer:
a. Accounting and recording for
securities. Custodians must employ
accounting and safekeeping procedures
that fully protect customer securities. It is
essential that custodians segregate
customer securities from one another and
from its proprietary holdings to protect the
same from the claims of its general
creditors.
X441.8 - X441.10
05.12.31
All securities held under custodianship

shall be recorded in the books of the custodian
at the face value of said securities in a separate
subsidiary ledger account Securities Held
Under Custodianship if booked in the Bank
Proper or the subsidiary ledger account
Safekeeping and Custodianship Securities
Held Under Custodianship, if booked in the
Trust Department: Provided, That securities
held under custodianship where the custodian
also performs securities borrowing and lending
as agent shall be booked in the Trust
Department.
b. Documentation. The appropriate
documentation for custodianship shall be
made and it shall clearly define, among
others, the authority, role, responsibilities,
fees and provision for succession in the
event the custodian can no longer discharge
its functions. It shall be accepted in writing
by the counterparties.
The governing custodianship agreement
shall be pre-numbered and this number shall
be referred to in all amendments and
supplements thereto.
c. Confirmation of custody. The
custodian shall issue a custody confirmation
to the purchaser or borrower of securities
to evidence receipt or transfer of securities
as they occur. It shall contain, as a
minimum, the following information on the
securities under custody:
(1) Owner of securities;
(2) Issuer;
(3) Securities type;
(4) Identification or serial numbers;
(5) Quantity;
(6) Face value; and
(7) Other information, which may be
requested by the parties.
d. Periodic reporting. The custodian
shall prepare at least quarterly (or as frequent
as the owner of securities will require)
securities statements delivered to the registered
owners address on record. Said statement
shall present detailed information such as, but
not limited to, inventory of securities,
outstanding balances, and market values.
X441.9 Independence of the

registry and custodian. A BSP-accredited
securities registry must be a third party
with no subsidiary/affiliate relationship
with the issuer of securities while a BSPaccredited custodian must be a third party
with no subsidiary/affiliate relationship
with the issuer or seller of securities. A
bank accredited by BSP as securities
custodian may, however, continue holding
securities it sold under the following cases:
a. where the purchaser is a related
entity acting in its own behalf and not as
agent or representative of another;
b. where the purchaser is a nonresident with existing global custody
agreement governed by foreign laws and
conventions wherein the bank is designated
as custodian or sub-custodian; and
c. upon approval by the BSP, where
the purchaser is an insurance company
whose custody arrangement is either
governed by a global custody agreement
where the bank is designated as custodian
or sub-custodian or by a direct custody
agreement with features at par with the
standards set under this Subsection drawn
or prepared by the parent company owning
more than fifty percent (50%) of the capital
stock of the purchaser and executed by the
purchaser itself and its custodian.
Purchases by non-residents and
insurance companies that are exempted
from the independence requirement of this
Section shall, however, be subject to all
other provisions of this Subsection.
X441.10 Registry of scripless
securities of the Bureau of the Treasury
The Registry of Scripless Securities (RoSS),
operated by the Bureau of the Treasury,
which is acting as a registry for government
securities is deemed to be automatically
accredited for purposes of this Section and
is likewise exempted from the
independence requirement under Subsec.
X441.9. However, securities registered
under the RoSS shall only be considered
Part IV - Page 37
X441.10 - X441.29
05.12.31
delivered if said securities were transferred

by means of book entry to the appropriate
designated custodian. Book entry transfer to
a sub-account for clients under the primary
account of the seller shall not constitute
delivery for purposes of this Section and of
Subsecs. X235.5 and X238.1.
X441.11 Confidentiality. A BSPaccredited securities custodian/registry shall
not disclose to any unauthorized person any
information relative to the securities under
its custodianship/registry. The Management
shall likewise ensure the confidentiality of
client accounts of the custody or registry unit
from other units within the same
organization.
X441.12 Compliance with antimoney laundering laws/regulations. For
purposes of compliance with the
requirements of R.A. No. 9160, otherwise
known as the Anti-Money Laundering Act
of 2001, as amended, particularly the
provisions regarding customer identification,
record keeping and reporting of suspicious
transactions, a BSP-accredited custodian may
rely on referral by the seller/issuer of
securities: Provided, That it maintains a
record of such referral together with the
minimum identification, information/
documents required under the law and its
implementing rules and regulations.
A BSP accredited custodian must maintain
accounts only in the true and full name of
the owners of the security. However, said
securities owners may be identified by
number or code in reports and
correspondences to keep his identity
confidential.
Securities subject of pledge and/or deed
of assignment as of 14 October 2004 (date
of Circular 457), may be held by a lending
bank up to the original maturity of the loan
or full payment thereof, whichever comes
earlier.
Part IV - Page 38

Securities held under custodianship
whether booked in the Trust Department
or carried in the regular books of the bank
shall be subject to a security deposit for
faithful performance of duties at the rate
of 1/25 of one percent (1%) of the total
face value or P500,000 whichever is
higher.
However, securities held under
custodianship where the custodian also
performs securities borrowing and lending
as agent shall be subject to a higher basic
security deposit of one percent (1%) of the
total face value. For this purpose, the
following subsidiary ledger account shall be
created in the Trust Department Books:
Safekeeping and Custodianship Securities Held Under Custodianship with
Securities Borrowing and Lending As Agent
Compliance shall be in the form of
government securities deposited with the
BSP eligible pursuant to existing regulations
governing security for the faithful
performance of trust and other fiduciary
business.
X441.14 Reportorial requirements.
An accredited securities custodian shall
comply with reportorial requirements that
may be prescribed by the BSP, which shall
include as a minimum, the face and market
value of securities held under custodianship.
X441.15 X441.28 (Reserved)
X441.29 Sanctions. Without prejudice
to the penal and administrative sanctions
respectively, of the R.A. No. 7653, violation
of any provision of this Section shall be
subject to the following sanctions/penalties:
a. First offense
the date the violation was committed up to
the date it was corrected; and
X441.29 - X499
05.12.31
(2) Reprimand for the directors/officers

b. Second offense (1) Fine of up to P20,000 a day for the
the date the violation was committed up to
the date it was corrected; and
(2) Suspension for ninety (90) days
for the violation.
c. Subsequent offenses
it was corrected;
or registry; and
(3) Suspension for one hundred twenty

Sec. X499 Sanctions. Any violation of
the provisions of this Part shall be subject
to Sections 36 and 37 of R.A. No. 7653
without prejudice to the imposition of other
sanctions as the Monetary Board may
consider warranted under the
circumstances that may include the
suspension or revocation of a banks
fiduciary business or in investment
management activities, and such other
sanctions as may be provided by law.
The guidelines for the imposition
of monetary penalty for violations/
offenses with sanctions falling under
Section 37 of R.A. No. 7653 on banks,
their directors and/or officers are shown
in Appendix 67.
Part IV - Page 39
X501 - X501.2
07.12.31
PART FIVE
FOREIGN CURRENCY DEPOSIT SYSTEM AND OTHER OPERATIONS IN
FOREIGN CURRENCY
Section X501 Foreign Currency Deposit
System. The foreign currency deposit
operations of banks under R.A. No. 6426,
as amended, shall be governed by the
following rules and regulations.
X501.1 Definition of terms. The
following terms and phrases shall mean
as follows:
a. FCDU and EFCDU shall refer to a
unit of a local bank or of a local branch of a
foreign bank authorized by the BSP to
engage in foreign currency-denominated
transactions, pursuant to the provisions of
R.A. No. 6426, as amended.
b. Local bank shall refer to a KB, UB
or TB organized under the laws of the
Republic of the Philippines.
c. Local branch of a foreign bank
shall refer to a branch of a foreign bank
doing business in the Philippines.
d. Short-term loans and securities
shall refer to those with maturities of one
(1) year or less.
e. Medium-term loans and securities
shall refer to those with maturities of more
than one (1) year but not more than five
(5) years.
f. Long-term loans and securities
shall refer to those with maturities of more
than five (5) years.
a. KBs/UBs may be authorized to
operate an FCDU or EFCDU: Provided,
That they meet the minimum capital
requirements as prescribed under Sec.
X106 and Subsecs. X106.1 and X106.2, and
in the case of branches of foreign banks,
Subsecs. X121.4 and X121.5.
b. TBs with net worth or combined
if located in Metro Manila or P52.0 million

if located outside Metro Manila may,
subject to prior Monetary Board approval,
operate an FCDU. A TB desiring to
operate an FCDU shall file an application
with the appropriate department of the SES.
The application shall be signed by the bank
shall be accompanied by the following
documents:
the application.
(2) A certification signed by the
that the bank has complied with all
authority to operate an FCDU in
Appendix 5a.
Transitory provisions. TBs authorized
to operate and are actually operating an
FCDU are hereby given a period of two
(2) years reckoned from 07 March 2002
within which to comply with the minimum
capital requirements for FCDU: Provided,
That this requirement may be substituted
by a capital build-up program for a period
of not more than five (5) years or only up
to 31 December 2007 and which must be
approved by the Monetary Board:
Provided, further, That annual cash infusion
shall be included in the capital build-up
program adopted for this purpose. The
amount of cash infusion shall be evenly
distributed over the capital build-up
program period. Banks which failed to
comply with the required capitalization
upon expiration of said two (2)-year period
given them or those which failed to comply
with approved capital build-up program shall
liquidate their FCDU business within one
(1) year and shall surrender to the BSP their
Part V - Page 1
X501.2 - X501.3
08.12.31
corresponding FCDU licenses. The license

of TBs already authorized to operate FCDU
but not yet operating the same shall be
automatically revoked if they do not
comply with the above minimum capital
requirements as of 07 May 2002.
In addition, the standard pre-qualification
requirements prescribed under Appendix 5
shall be complied with by a bank applying
for an FCDU/EFCDU license.
c. RBs/Coop Banks may, subject to
prior Monetary Board approval, be
authorized to operate an FCDU: Provided,
That they meet the minimum capital under
Subsec. X151.3 or P20.0 million,
whichever is higher. An RB/Coop Bank
desiring to operate an FCDU shall file an
application with the appropriate
department of the SES. The application
shall be signed by the bank president or
officer of equivalent rank and shall be
the application.
(2) Certification signed by the
that the bank has complied with all the
authority to operate an FCDU in
Appendix 5a.
In addition to requirements under
existing regulations, an RB/Coop Bank
authorized to operate an FCDU shall:
(a) Have the capacity to operate an
FCDU. An RB/Coop Bank may, however,
upgrade its capacity by appointing as
officer who will be in-charge of the FCDU
operations either, (i) an individual with
actual experience in another bank as
in-charge or assistant in-charge of the same
operations for at least one (1) year, or
(ii) an individual who has attended a
specialized training course on FCDU
transactions or operations conducted by the
BSP Institute or an institution or bank duly
accredited by the BSP; and
Part V - Page 2
(b) Establish a risk management system

appropriate to its operations, characterized
by clear delineation of responsibility for risk
system, appropriately structured risk
limits, effective internal control system and
reporting system.
579 dated 23 August 2007, and 522 dated 23 March 2006)
X501.3 Authorized transactions

a. Banks which are granted a
certificate of authority to operate an FCDU
are authorized to engage in the following
transactions in any acceptable foreign
currency:
(1) Accept deposits and trust accounts
from residents and non-residents;
(2) Deposit, regardless of maturity,
with foreign banks abroad, OBUs and
other FCDUs/EFCDUs;
(3) Invest in readily marketable
foreign currency denominated debt
instruments. For this purpose, readily
marketable debt instruments shall refer to
debt instruments that are quoted in an
active market and the quoted prices are
readily and regularly available from an
exchange, dealer, broker, industry group,
pricing service or regulatory agency, and
those prices represent actual and regularly
occurring market transactions on an arms
length basis;
(4) Grant short-term foreign currency
loans as may be allowed by BSP regulations;
(5) Borrow, (a) regardless of maturity,
from EFCDUs, foreign banks abroad and
OBUs, subject to existing rules on foreign/
foreign currency borrowings; and (b) on
short-term maturity, from other FCDUs;
(6) Engage in foreign currency-foreign
currency swap with the BSP, OBUs and
other FCDUs/EFCDUs;
(7) Engage in securities lending
activities as lender subject to the provisions
in Sec. X531;
X501.3
08.12.31
(8) Engage in repo agreements

involving foreign currency denominated
government securities subject to the
provisions in Sec. X532;
(9) Purchase
foreign
currency
denominated government securities under
resale agreements from other banks
EFCDU/FCDU, non-resident FIs and OBUs,
(a) That the government securities
purchased shall be limited to those issued
by central governments and/or central
banks of foreign countries with the
highest credit quality given by any two
(2) internationally accepted rating
agencies (i.e., currently the equivalent
of Standard and Poors AA- or Moodys
Aa3 or better);
(b) That for TBs which are granted a
certificate of authority to operate an FCDU,
the maximum term of the resale
agreements shall be one (1) year; and
(c) That such government securities
purchased under resale agreements shall
be classified as Trading Account Securities
- Loans and booked under the sub-account
Government Securities Purchased under
Resale Agreements EFCDU/FCDU;
(10) Issue HT1 capital instruments; and
(11) Engage in US dollar denominated
repo agreements with the BSP, as provided
RBs/Coop Banks which are authorized
to operate FCDUs shall be governed by
the provisions of Circular 1389 dated 13
April 1993, as amended, and by all existing
regulations applicable to FCDUs. They
may undertake all transactions which TBs
with FCDUs are authorized to enter into,
except the granting of loans to producers/
manufacturers, including oil companies
and public utility concerns.
b. UBs/KBs which are authorized to
operate under the expanded foreign
currency deposit system may engage in
the following transactions in any acceptable
foreign currency:
(1) Accept deposits and trust accounts

from residents and non-residents;
(2) Deposit with foreign banks abroad,
OBUs and other FCDUs/EFCDUs;
(3) Invest in foreign currencydenominated debt instruments;
(4) Grant foreign currency loans as
may be allowed by the BSP;
(5) Borrow from other FCDUs/
EFCDUs and from non-residents and
OBUs, subject to existing rules on foreign
borrowings;
(6) Engage in foreign currency-foreign
currency swap;
(7) Engage in foreign exchange
trading and, with prior BSP approval,
engage in financial futures and options
trading;
(8) On request/instructions of its
foreign correspondent bank:
(a) issue letters of credit for a
non-resident importer in favor of a
non-resident exporter;
(b) pay, accept or negotiate drafts/ bills
of exchange drawn under the letter of
credit; and
(c) make payment to the order of the
non-resident exporter:
Provided, That the foreign correspondent
bank shall deposit sufficient foreign
exchange with the EFCDU issuing the letter
of credit to cover all drawings;
(9) Engage in direct purchase of export
bills of resident exporters, subject to the
(a) Export transactions covered by
usance or sight letters of credit shall be
allowed to be purchased by EFCDUs; and
(b) Export bills negotiated/purchased
by the banks Regular Unit and outstanding
in its books shall not be allowed to be
purchased by its EFCDU;
(10)Engage in securities lending
activities as lender subject to the provisions
in Sec. X531;
(11)Engage in repo agreements
involving foreign currency denominated
Part V - Page 3
X501.3
08.12.31
government securities subject to the

provisions in Sec. X532;
(12)Invest in foreign currency
denominated structured products issued
by banks and SPVs of high credit quality
subject to the provisions in Sec. 1636;
(13)Purchase foreign currency
denominated government securities under
resale agreements from other banks
EFCDU/FCDU, non-resident FIs and
OBUs, subject to the following conditions:
(a) That the government securities
purchased shall be limited to those issued
by central governments and/or central banks
of foreign countries with the highest credit
quality given by any two (2) internationally
accepted rating agencies (i.e., currently the
equivalent of Standard and Poors AA - or
Moodys Aa3 or better); and
(b) That such government securities
purchased under resale agreements shall be
classified as Trading Account Securities -Loans
and booked under the sub-account
Government Securities Purchased under
Resale Agreements EFCDU/FCDU;
(14) Issue HT1 capital instruments; and
(15) Engage in US dollar denominated
repo agreements with the BSP, as provided
c. Excess FCDU/EFCDU funds of
UBs and KBs may be lent to RBU to fund
the latters on-balance sheet foreign
exchange trade transactions, subject to the
following conditions
(1) FCDU/EFCDU may lend funds to
RBU only after it has fully complied with
the prescribed 100% asset cover/thirty
percent (30%) liquid asset cover on
FCDU/EFCDU liabilities.
(2) FCDU/EFCDU lending to RBU
shall be (a) Capped at the lower of total
outstanding balance on RBUs on-balance
sheet foreign currency trade assets1 or
thirty percent (30%) of the level of FCDU/
EFCDU deposit liabilities, computed at the
average daily balance (using 2-month

rolling data) as of end of the second week
prior to the reference week (refer to
Appendix 51a for sample computation).
Total outstanding balance of FCDU/
EFCDU lending to RBU shall, at all times,
be within the prescribed cap. Any breach
thereon shall be subject to the imposition
of a monetary penalty of P30,000 per day,
commencing on the day the cap was
breached until the same is corrected.
(b) Charged interest at prevailing
market rates, computed monthly at the
average daily balance of the receivable
from RBU.
(c) On short-term maturity, or for a
period of one (1) year or less. Balances
shall be settled, within a year from
availment, by way of actual transfer of
foreign currency assets from the RBU
books to the FCDU/EFCDU books.
(3) The lending transaction shall be
booked as Lending-RBU in the FCDU/
EFCDU books and Borrowing-FCDU/
EFCDU in the RBU books.
(4) The Lending-RBU account
balance [net of transactions outstanding for
more than one (1) year] shall qualify as
eligible asset cover, but not as liquid asset
cover, for FCDU/EFCDU liabilities.
(5) Banks shall establish and maintain
systems to
(a) monitor the foreign currency funds
flow of RBU and the average daily
balances of foreign currency trade assets,
with minimum database covering a two
(2) -month rolling period; and
(b) account for the utilization of funds
borrowed from FCDU/EFCDU.
The systems as well as periodic reports
generated therefrom shall be made
available to the BSP examiners for
verification.
(6) Banks shall submit to the appropriate
department of the SES, within five (5)
banking days from end of reference month,
1
i.e., Customers Liability on Import Bills-Foreign, Customers Liability under Trust Receipts-Foreign, Customers Liability
for this Banks Acceptances Outstanding-Foreign, Export Bills Purchased and Foreign Bills Purchased-Documentary,
excluding past due accounts and Items in Litigation.
Part V - Page 4
X501.3 - X501.4
08.12.31
a certification under oath (prescribed format

shown in Appendix 51), signed by the
banks president or country manager, in
case of local branch/subsidiary of foreign
banks, compliance officer and head of
treasury, to the effect that, at any day of
the reference month, the outstanding
balance on funds borrowed from FCDU/
EFCDU did not exceed the prescribed cap
[i.e., lower of total outstanding balance on
RBUs on-balance sheet foreign currency
trade assets or thirty percent (30%) of the
level of FCDU/EFCDU deposit liabilities]
and were utilized by RBU solely for foreign
currency trade transactions.
The foregoing rule shall be subject to
quarterly review by BSP.
590 dated 27 December 2007, 565 dated 03 May 2007,
522 dated 23 March 2006 and 519 dated 16 March 2006)
X501.4 Foreign currency cover

requirements. Depository banks under
the foreign currency deposit and expanded
foreign currency deposit systems shall
maintain at all times a 100% cover for their
foreign currency liabilities, except US
dollar denominated repo agreements with
the BSP: Provided, That violation of the
terms and conditions of the US dollar
denominated repo agreements facility shall
subject the borrowings of the bank to the
FCDU/EFCDU asset and liquid asset cover
requirements. For purposes of complying
with this requirement, the principal offices
in the Philippines of the authorized banks
and all its branches located therein shall
be considered as a single unit. The
foreign currency cover shall consist of
the net carrying amount of the following:
a. For banks authorized to operate an
FCDU (1) Foreign currency cash on hand;
(2) Foreign currency checks and other
cash items;
(3) Due from BSP Foreign Currency;
(4) Due from other banks (other FCDUs/
EFCDUs, OBUs, and non-resident banks);
(5) Derivatives with Positive Fair

Value Held for Trading and/or Hedging
(Derivatives with Negative Fair Value Held
for Trading and/or Hedging shall require
corresponding asset/liquid asset cover);
(6) Investments in readily marketable
foreign currency-denominated debt
instruments, booked under the following
control accounts:
(a) Held for Trading (HFT);
(b) Designated at Fair Value through
Profit or Loss (DFVPL);
(c) Available for Sale (ASS); and
(d) Held to Maturity (HTM).
Foreign currency-denominated debt
securities sold/lent in repo agreements/
securities lending and borrowing transactions
shall be considered as eligible asset cover
for the 100% asset cover requirement. The
same treatment shall likewise apply to
securities used as additional collateral in
repo agreements or as collateral by
borrowing bank in securities lending and
borrowing transactions;
(7) Foreign currency loans and
receivables maturing within one (1) year
authorized by the BSP, booked under the
following:
(a) Loans to BSP;
(b) Interbank loans receivable; and
(c) Loans and receivables others.
Loans and receivables authorized by
the BSP shall refer to those granted pursuant
to Circular No. 1389 dated 13 April 1993,
as amended, and shall include the
following:
(a) those with specific approval by the
BSP under Section 23 of Circular No. 1389,
as amended (Loans Requiring Prior BSP
Approval);
(b) those short term loans to resident
private and public sector borrowers which
under existing regulations require no prior
BSP approval but allowed to be serviced
using foreign exchange purchased from the
banking system (i.e., loans to commodity
and service exporters, indirect exporters,
Part V - Page 5
X501.4
08.12.31
producers/manufacturers, including oil

companies and public utility concerns)
under Section 24.4 of Circular No. 1389,
as amended, (Loans Not Requiring Prior
BSP Approval); and
(c) those loans to resident private sector
borrowers to be serviced using foreign
exchange purchased from outside of the
banking system under Section 24.1.a of
Circular No. 1389, as amended:
Provided, That all applicable banking
rules and regulations are complied with
including single borrowers limit as
provided in Sec. X303;
repo agreements, certificates of assignment/
participation with recourse, and securities
lending and borrowing transactions,
maturing within one (1) year;
(9) Foreign currency accrued interest
income from financial assets;
(10) Accounts receivable arising from
sale of financial assets under the trade date
accounting pending actual settlement/
delivery of the underlying securities;
(Accounts payable arising from the
purchase of financial assets under the trade
date accounting pending actual settlement/
receipt of the underlying securities shall
require corresponding asset/liquid asset
cover);
(11) Loans to RBU [net of transactions
outstanding for more than one (1) year]:
Provided, That the conditions under Item
(c)" of Subsec. X501.3 are complied with;
(12) Receivable from the RBU book
arising from the exercise of warrants paired
with ROP Global Bond Holdings in the
FCDU/EFCDU book: Provided, That it
shall be settled by the RBU book to the
FCDU/EFCDU book within six (6) months
from the date of receipt of the Exchange
Securities; and
(13) Such other assets as may be
determined by the Monetary Board as
eligible asset cover.
b. For banks authorized to operate an
EFCDU - The foregoing accounts, regardless
Part V - Page 6
of maturity, and in the case of investment

in foreign currency denominated debt
instruments (including debt instruments
booked under Unquoted Debt Securities
Classified as Loans and investments in
structured products), regardless of maturity
and marketability, shall all be considered
as eligible asset cover. Loans to resident
private and public sector borrowers which
under Section 24.4 of Circular No. 1389,
as amended, require no prior BSP approval
and allowed to be serviced using foreign
exchange purchased from the banking
system (i.e., loans to commodity and
service exporters, indirect exporters,
producers/manufacturers, including oil
companies and public utility concerns) shall
however have short-term maturity.
In addition, the following shall also be
considered as eligible asset cover:
(1) Loans and receivables granted by
EFCDU pursuant to Section 24 of Circular
No. 1389 dated 13 April 1993, as
amended, i.e., those loans of non-residents
from EFCDUs, to be serviced using foreign
exchange purchased from outside the
banking system under Section 24.1.b of
Circular No. 1389, as amended: Provided,
That all applicable banking rules and
regulations are complied with including
single borrowers limit as provided in
Sec. X303;
(2) Outstanding export bills purchased
in the EFCDU books, booked under the
following control accounts:
(a) Interbank loans receivable - if
without recourse; and
(b) Loans and receivables others - if
with recourse.
For this purpose, net carrying amount
shall refer to the gross amount of financial
asset, plus or minus, as the case may be,
the following: (i) unamortized premium/
(discount) determined using the effective
interest method; (ii) any accumulated market
gains/(losses) in the case of ASS financial
assets; and (iii) any allowance for credit losses
determined based on existing regulations.
X501.4 - X501.5
08.12.31
c. Further, at least thirty percent (30%)

of the cover requirement for foreign currency
liabilities in the FCDU/EFCDU shall be in
the form of liquid assets as follows:
(1) Foreign currency cash on hand;
(2) Foreign currency checks and other
cash items;
(3) Due from BSP Foreign currency
with remaining maturity of one (1) year or
less regardless of funding: Provided, That
such deposit/placement is not encumbered
or is not being utilized for any other
purposes;
(4) Due from other banks (other
FCDUs/EFCDUs, OBUs and non-resident
banks);
instruments, booked under the following
control accounts:
(a) HFT;
(b) DFVPL;
(c) ASS; and
(d) HTM;
except for the following:
(a) those which are sold/lent in repo
agreements/securities lending and
borrowing transactions and those used as
additional collateral in repo agreements or
as collateral by borrowing bank in
transactions; and
(b) those investments in structured
products;
(6) Loans and receivables authorized
by the BSP booked under the following:
(a) Loans to BSP maturing within one
(1) year;
(b) Interbank loans receivable
maturing within one (1) year;
(c) Loans and receivables Others that
is any of the following:
(i) Outstanding export bills purchased
in the EFCDU books; and
(ii) Short-term EFCDU loans to
exporters in the form of export packing
credits, whether rediscounted or not under
BSPs Export Dollar Facility, up to the

extent guaranteed by TIDCORP or
SBGFC: Provided, That these credits are
not overdue;
repo agreements, certificates of
assignment/participation with recourse and
transactions, maturing within one (1) year;
(8) Accounts receivable arising from
sale of financial assets under the trade date
accounting pending actual settlement/
delivery of the underlying securities
pertaining to readily marketable foreign
currency denominated debt instruments; and
(9) Receivable from the RBU book
arising from the exercise of warrants paired
with ROP Global Bond Holdings in the
FCDU/EFCDU book: Provided, That it shall
be settled by the RBU book to the FCDU/
EFCDU book within six (6) months from the
date of receipt of the Exchange Securities.
The 100% asset cover and thirty percent
(30%) to be held in the form of liquid assets
enumerated above, shall be unencumbered,
except as otherwise provided in second
paragraph of Item a(6)" hereof.
d. The Due from Other Banks Non-Resident (DFOB-Non-Resident)
account representing cover for foreign
currency liabilities of FCDU/EFCDU shall be
kept separate and distinct from the DFOB Non-Resident account for the RBU.
(As amended by Circular Nos. 627 dated 23 October 2008, 602
dated 13 February 2008, 601 dated 13 February 2008, 575 dated
17 July 2007 and 559 dated 26 January 2007)
X501.5 Foreign currency deposit

with the Bangko Sentral. Foreign currency
deposit with the BSP equivalent to at least
fifteen percent (15%) as a form of foreign
currency cover referred to in Section 4 of
R.A. No. 6426, as amended, shall be
optional on FCDUs of KBs/UBs and TBs.
The BSP may pay interest on the foreign
currency deposit and if requested, shall
exchange the foreign currency notes and
Part V - Page 7
X501.5 - X501.16
08.12.31
coins into foreign currency instruments

drawn on its depository banks.
X501.6 Currency composition of
the cover. FCDUs of TBs shall maintain
the foreign currency cover in the same
currency as that of the corresponding
foreign currency deposit liability.
FCDUs/EFCDUs of KBs/UBs shall
maintain not less than seventy percent
(70%) of the foreign currency cover in
the same currency as that of the liability
and thirty percent (30%) or less, at the
option of the FCDU/EFCDU, may be
denominated in other acceptable foreign
currencies.
X501.7 Secrecy of deposits. All
foreign currency deposits are absolutely
confidential. Except upon the written
permission of the depositor, in no instance
shall such foreign currency deposits be
examined, inquired or looked into by any
person, government official, bureau or
office, whether judicial, administrative or
legislative, or any other entity, whether
public or private.
X501.8 Numbered accounts. FCDUs/
EFCDUs may adopt a numbered account
system.
X501.9 Withdrawability and
transferability of deposits. There shall
be no restrictions on the withdrawal by
the depositor of his deposit or on the
transfer of the same abroad, except those
arising from the contract between the
depositor and the bank.
X501.10 Insurance coverage
Foreign currency deposits shall be insured
under the provisions of R.A. No. 3591, as
amended. Depositors are entitled to
receive payment in the same currency in
which the insured deposits are
denominated.
Part V - Page 8
X501.11 Rates of interest. Foreign

currency deposits shall not be subject to
interest ceilings.
X501.12 Eligibility as collateral
Deposits under the Foreign Currency
Deposit System are eligible as collateral
for peso loans or for foreign currency loans
to residents and non-residents.
X501.13 Taxes. All foreign currency
deposits, including interest and all other
income or earnings of such deposits, are
exempt from any and all taxes whatsoever,
irrespective of whether or not these
deposits are made by residents or
non-residents, so long as the deposits are
eligible or allowed under these rules, and
in the case of non-residents, irrespective
of whether or not they are engaged in
trade or business in the Philippines.
X501.14 Exemption from court order
or process. Foreign currency deposits shall
be exempt from attachment, garnishment or
any other order or process of any court,
legislative body, government agency or any
administrative body whatsoever.
X501.15 Inapplicability of the
Usury Law. The provisions of R.A. No.
2655, as amended (Usury Law), shall not
apply to banks in respect to their foreign
currency transactions under this Section.
X501.16 Accounting. The foreign
currency deposits and their corresponding
cover shall be considered as funds separate
and distinct from the regular assets and
liabilities of the authorized banks. Authorized
banks shall maintain a separate accounting for
transactions covered by these rules that will
enable preparation of the Balance Sheet and
Profit and Loss Statement covering said funds.
For purposes of preparing the FCDU/
EFCDU financial statements, the bank
shall use the US dollar (USD) as its
X501.16 - X502.1
08.12.31
functional currency. However, for

purposes of consolidating the FCDU/
EFCDU financial statements with the RBU
financial statements, these shall be
translated into the presentation currency,
i.e., Philippine Peso (Php).
X501.17 Supervision. The Governor

and the head of the appropriate
department of the BSP, personally or by
deputies, are authorized to verify the
books of account and transactions of each
authorized bank, to verify the eligible
cover, as well as review all other
requirements under these regulations
and the banks compliance with the
provisions of law and these regulations.
X501.18 Sanctions
a. Any willful violation of R.A. No.
6426, as amended, or any regulation duly
promulgated by the Monetary Board
pursuant thereto, shall subject the offender
upon conviction to an imprisonment of not
less than one (1) year nor more than five
(5) years or a fine of not less than P5,000
nor more than P25,000 or both such fine
and imprisonment, at the discretion of the
court.
The BSP may revoke or suspend the
authority of a bank to accept new foreign
currency deposits for violation of R.A. No.
6426, as amended, or these regulations,
or if such bank ceases to possess the
minimum qualifications required.
b. Violation on the monthly
reportorial requirement required under
Subsec. X501.3c shall be subject to:
(1) Maximum monetary penalty of
P30,000 per day (reckoned from due date
until date corrected) for any false/erroneous
certification issued, without prejudice to the
imposition, on the erring bank and/or the
concerned bank officers, of the penal
sanctions provided under Sections 35 and
36 of R.A. No. 7653.
(2) Monetary penalty of P1,200 per

day for delayed and/or incomplete
certifications.
c. Any deficiency in the 100%
FCDU/EFCDU cover and/or thirty percent
(30%) liquid asset cover that may be
incurred due to violation of the conditions
in Subsec. X501.3c shall be subject to the
imposition of a monetary penalty of onetenth of one percent (1/10 of 1%) of the
deficiency, converted to its peso equivalent
at the exchange rate prevailing on the date
the deficiency was incurred but not to
exceed P30,000 per deficiency, per day.
Sec. X502 Other Transactions in Foreign
Currency. All categories of banks duly
licensed by the BSP (including RBs/Coop
Banks) are considered authorized agent
banks (AABs) and therefore, can, subject
to compliance with the provisions of
Circular No. 1389 dated 13 April 1993, as
amended, buy and sell foreign exchange
(FX) from the public even without an
FCDU license and prior BSP approval.
They are likewise required to comply with
the requirements under Sec. X691,
particularly on the Know Your Customer
(KYC) rules, record keeping and reporting
of covered and suspicious transactions.
The operation of mobile foreign currency
booths and off-site automatic multi-currency
money changers (OAMMC) shall be
governed by this Section.
X502.1 Mobile foreign exchange

booths. Without prior authority from the
BSP, banks may operate mobile foreign
currency booths, subject to the following
guidelines:
a. The bank shall advise the BSP of
the number of mobile foreign currency
booths it will operate, the date it will start
operations, the areas of operation and the
branch where the foreign exchange
acquisition will be turned over and booked;
Part V - Page 9
X502.1 - X531
08.12.31
b. The services of the mobile foreign

currency booths shall be solely for
changing foreign exchange currency into
peso notes and coins, and not pesos to other
foreign currency;
c. The mobile foreign currency booths
shall not accept deposit or perform other
banking functions other than purchase of
foreign currencies;
d. The internal control system of the
proposed mobile foreign currency booths
department of the SES, as well as other
security measures adopted therein; and
e. The mobile foreign currency
booths shall be covered by insurance to
protect adequately the bank against
losses of whatever nature arising from its
operations.
X502.2 Off-site automatic
multi-currency money changers. With
prior approval of the BSP, banks which
have shown general compliance with
banking laws, rules and regulations may
install an OAMMC, subject to the
a. The OAMMC shall be installed only
in centers of activities like shopping
centers, supermarkets, hotels and
airports: Provided, That the site is within
the area where the applicant bank has a
regular branch to service the money
changers;
b. The applicant bank shall maintain
adequate internal control and security
measures, which shall include immediate
rejection and detection of fake currencies
by the machines;
c. The transactions of the money
changers shall be booked in specific
branches which must be identified at the
time of application for the putting up of an
OAMMC; and
d. The services of the OAMMC shall
be solely for changing foreign exchange
currency into peso notes and coins, and not
pesos to other foreign currencies.
Part V - Page 10
Sec. X503 Recognition of Positions Arising

from Banks Foreign Currency Options in
the Computation of Net Open FX Position
The following are the guidelines for the
recognition of positions arising from banks
foreign currency options in the computation
of the net open FX position:
a. Scope. For purposes of complying
with Circular No. 1327 dated 30 January
1992, as amended, UBs and KBs with
expanded derivatives authority shall
include the net delta weighted positions
of foreign currency options in their
computation of the net FX position. UBs
and KBs without expanded derivatives
authority shall include the notional
amounts of purchased options that are in
or at the money and exclude those that
are out of the money in their computation
of the net FX position.
b. Reporting. The USD equivalent of
the positions arising from foreign currency
options shall be reported as a manual
adjustment to the net FX position amount
reported in the banks Consolidated
Foreign Exchange Position Report
(CFXPR). For banks with expanded
derivatives authority, the USD equivalent
of the foreign currency options position is
equal to the sum of long delta-weighted
positions minus the sum of short
delta-weighted positions arising from FX
options contracts. The breakdown of the
options positions by currency and a listing
of outstanding contracts shall be annexed
to the CFXPR.
Sec. X531 Securities Lending. Banks with
EFCDU/FCDU license may engage in
securities lending activities as lender
a. The securities to be lent shall be
limited to securities lodged under the
account Trading Account Securities
(TAS) - Investments (for UBs and KBs
only) and ASS - Foreign.
X531
08.12.31
The use of IBODI holdings shall also

be allowed in securities lending, subject
(1) The lending bank had the positive
intention and ability to maintain or recover
control of the same or substantially similar
securities as those lent.
(2) The counterpartys failure to
redeliver the securities lent at maturity or
at the date agreed upon could not have
been reasonably anticipated by the lender
at the time of the transaction.
(3) In case of failure or default of the
counterparty to redeliver the securities
lent, the same shall be immediately
replaced by identical or substantially
similar securities. For this purpose, a
replacement security may only be
considered substantially similar to the
securities lent if all of the following
circumstances are present:
(a) the security must have the same
primary obligor and must have the same
guarantor under the same terms and
conditions, if guaranteed;
(b) the security must be identical in
form and type so as to give the same risks
and rights to the holder; and
(c) the debt instrument must have the
same maturity and interest rate.
respectively, of R. A. No. 7653, violation
of any provision of Item a of this Section
shall be a ground for considering all IBODI
of the concerned entity as TAS subject to
mark-to-market requirements and shall
disqualify said entity from carrying in its
books the account Investment in Bonds
and Other Debt Instruments for a period
of two (2) years reckoned from the date
the violation was committed or
discovered, whichever comes later.
b. The lending activity shall have prior
approval of the banks board of directors
and shall be governed by adequate written
policies and procedures duly approved by

the board of directors;
c. The securities lending shall be
done through reputable internationally recognized and experienced third-party
lending agent/intermediary which must be
a regulated entity in its country of operation;
d. The securities lending transaction
shall be subject to a written legal agreement
between the lending bank and the lending
agent which must clearly specify the (1) relationship as well as the
respective duties and responsibilities of
each counterparty;
(2) obligation of the borrower to
redeliver a like quantity of the same issue
or series as the loaned securities;
(3) guidelines for selecting investments
for cash collateral, which shall include a
provision that cash collateral will not be
reinvested in liabilities of the lender, its
subsidiaries or affiliates; and
(4) lending fee or compensation;
e. The loaned securities must be
fully secured by debt securities of
countries or entities with highest credit
quality, cash in currencies acceptable as
part of international reserves, letters of
credit and certificates of deposits issued
by banks with highest credit quality. For
this purpose, a foreign country and a bank
with highest credit quality refer to a
foreign country and a bank given the
highest credit rating by any two (2) of the
following internationally accepted rating
agencies:
Rating Agencies
Highest Rating
Moodys
Aa3
Standard and Poorss
AA
Fitch IBCA
AA
Others as may be approved
by the Monetary Board
Collateral value shall initially be at least

102% of the current market value of the
loaned securities and maintained at 100%
of the value of the loaned securities plus
Part V - Page 11
X531 - X532
08.12.31
accrued interest thereon during the course

of the loan;
f. The lender shall do daily
mark-to-market on the loaned securities
and on the securities where cash collateral
is invested/reinvested;
g. The lender shall require from the
lending agent/intermediary timely and
comprehensive reports on the lending
activity;
h. For proper identification and
monitoring, the outstanding book
balance on the loaned securities shall be
reclassified to Government Securities
Lent under Securities Lending
Agreements;
i. The bank has in place a risk
management system commensurate to the
nature, volume and complexity of its
operations and characterized by clear
reporting system: Provided, That this
requirement shall be automatically
considered complied with by banks with
derivatives license;
j. The banks CAMELS composite
rating in the last BSP regular examination
is at least 3, with a minimum score of 3
on management; and
k. The foreign currency-denominated
debt securities lent or used as collateral by
the borrowing bank in securities lending
and borrowing transactions shall be
considered as eligible asset cover for the
100% cover requirement. However, these
shall not be eligible for the thirty percent
(30%) liquid asset cover.
Sec. X532 Repurchase Agreements

Involving Foreign Currency-Denominated
Government Securities. Banks may engage
in repo agreements involving foreign
Part V - Page 12
currency-denominated government
securities, subject to the following conditions:
a. Such repo agreements shall be
limited to:
(1) Trading Account Securities (TAS)
held under the FCDU/EFCDU books. The
government securities subject of repo
agreements are to be booked under the
account Government Securities Sold
under Repo Agreements-FCDU/EFCDU.
(2) IBODI holdings, subject to the
(a) The selling bank had the positive
intention and ability to maintain or recover
control of the same or substantially similar
securities as those sold.
(b) The counterpartys failure to
redeliver the securities sold at maturity or
at the date agreed upon could not have been
reasonably anticipated by the seller at the
time of the transaction.
(c) In case of failure or default of the
counterparty to redeliver the securities
sold, the same shall be immediately
replaced by identical or substantially
similar securities. For this purpose, a
replacement security may only be
considered substantially similar to the
securities sold if all of the following
circumstances are present:
(i) the security must have the same
primary obligor and must have the same
guarantor under the same terms and
conditions, if guaranteed;
(ii) the security must be identical in
form and type so as to give the same risks
and rights to the holder; and
(iii) the debt instrument must have the
same maturity and interest rate.
The provisions/requirements under
Sec. X531 which are not inconsistent with
the foregoing shall be strictly observed by
the bank concerned.
(3) ASS held under the FCDU/EFCDU
books. HFT and ASS under the RBU of UBs
and KBs are also allowed to be used in repo
agreements.
X532 - X564
08.12.31
(4) Securities booked as HFT and ASS

Debt Securities under the RBU of UBs and
KBs are also allowed to be used in repo
agreements.
respectively, of R.A. No. 7653, violation
of any provision of Item a(2) of this
Section shall be a ground for considering
all IBODI of the concerned entity as TAS
subject to mark-to-market requirements
and shall disqualify said entity from
carrying in its books the account
Investment in Bonds and Other Debt
Instruments for a period of two (2) years
reckoned from the date the violation was
committed or discovered, whichever
comes later.
b. The borrowings shall only be from
FCDUs/EFCDUs, non-resident FIs and
OBUs;
c. For TBs which are granted a
certificate of authority to operate an
FCDU, the maximum term of the repo
agreements shall be one (1) year;
d. The borrowings shall be booked
under Bills Payable and included in the
computation of the total FCDU/EFCDU
liabilities subject to the mandatory 100%
asset cover and thirty percent (30%) liquid
asset cover;
e. The foreign currency-denominated
debt securities sold or used as additional
collateral in repo agreements shall be
considered as eligible asset cover for the
100% cover requirement. However,
these shall not be eligible for the thirty
percent (30%) liquid asset cover;
f. Banks shall, at all times, comply with
the 100% FCDU/EFCDU asset cover and
thirty percent (30%) liquid asset cover; and
g. Banks shall monitor and assess the
risks inherent in these repo transactions.
Sec. X564 Transfer of Undivided Profits/

(Losses) from FCDU/EFCDU to RBU
Books. The transfer of Undivided Profits/
(Losses) FCDU/EFCDU to the Retained
Earnings Free (and in the case of
Philippine branches of foreign banks, Net
Due to H. O./Branches/Agencies Abroad)
account in the RBU book shall refer to
realized FCDU/EFCDU profits/(losses)
only and shall exclude the following:
1. Unrealized Gains/(Losses) from
Marking to Market of Financial Assets and
Liabilities HFT;
Marking to Market of Financial Assets and
Liabilities DFVPL;
3. Foreign Exchange Profit/(Loss);
Remeasurement of Hedging Instruments;
and
Remeasurement of Hedged Items
(collectively referred to as Net
Unrealized
Gains/(Losses)
from
Operations in this Section): Provided,
That prior to the transfer of realized
Undivided Profits/(Losses) FCDU/
EFCDU to the Retained Earnings Free
in the RBU book, the FCDU/EFCDU shall
fully provide for its classified accounts.
a. The transfer of realized FCDU/
EFCDU profits to the RBU book shall be
made initially by a debit to Undivided
Profits/(Losses) FCDU/EFCDU and a
credit to Retained Earnings Free - FCDU/
EFCDU at the end of the calendar year or
fiscal year adopted by the bank, and
subsequently by a corresponding transfer
of eligible foreign currency assets from the
FCDU/EFCDU to the RBU books within a
period of one month from the end of the
calendar year or fiscal year adopted by the
bank. The foreign currency assets shall be
in the form of:
(1) Due from BSP Foreign Currency;
(2) Due from other banks (other FCDUs/
EFCDUs, OBUs and non-resident banks);
Part V - Page 13
X564
08.12.31

instruments, except for the following:
(a) those which are sold/lent in repo
agreements/securities lending and
borrowing transactions and those used as
additional collateral in repo agreements
or as collateral of the borrowing bank in
transactions;
(b) those investments in structured
products: and
(c) those Philippine debt papers which
were restructured during the period of
moratorium in the payment of external debt.
Provided, That these shall likewise be
booked under the same category in the
RBU book as they were before the transfer
from FCDU/EFCDU.
The transfer of the abovementioned
eligible foreign currency assets
representing realized FCDU/EFCDU
profits to RBU book shall be made by a debit
to Retained Earnings Free - FCDU/
EFCDU.
b. The transfer of realized FCDU/
EFCDU losses to the RBU book shall be
made immediately and shall be
accompanied by a corresponding transfer of
the abovementioned eligible foreign
currency assets from the RBU book to the
FCDU/EFCDU: Provided, That investments
in readily marketable foreign currency
denominated debt instruments shall likewise
be booked under the same category in the
FCDU/EFCDU as they were before the
transfer from RBU book.
The transfer of the abovementioned
eligible foreign currency assets representing
realized FCDU/EFCDU losses during the
interim period from the RBU book shall be
made by a credit to Due to RBU FCDU/
EFCDU Realized Losses from Operations,
which account shall not be subject to asset
and liquid asset cover requirements, and
which account shall be credited to the
Undivided Profits/(Losses) FCDU/EFCDU
Part V - Page 14
at the end of the calendar year or fiscal

year adopted by the bank.
The amount of eligible foreign currency
assets to be transferred from the RBU book
to the FCDU/EFCDU shall be that which
will bring the balance of Due to RBU FCDU/EFCDU Realized Losses from
Operations, equal to the cumulative net
realized losses incurred from the beginning
of the calendar year or fiscal year adopted
by the bank.
Whenever the balance of Due to RBU
- FCDU/EFCDU Realized Losses from
Operations exceeds the cumulative net
realized losses incurred from the beginning
by the bank, the excess shall be settled by
the FCDU/EFCDU to the RBU by a credit
to the abovementioned eligible foreign
currency assets at the end of the reference
month.
c. The items comprising the Net
Unrealized Gains/(Losses) from Operations
in the FCDU/EFCDU, on the other hand,
shall be credited/debited to Undivided
Profits/(Losses) - FCDU/EFCDU at the end
of each month, which account shall be
credited/debited to Retained Earnings - Free
- FCDU/EFCDU at the end of the calendar
year or fiscal year adopted by the bank.
Whenever the total of the following
FCDU/EFCDU book accounts:
(1) Retained Earnings - Free - FCDU/
EFCDU,
representing
cumulative
unrealized gains/(losses) from operations
from prior years;
(2) Items comprising the Net
Unrealized Gains/(Losses) from Operations
credited/debited to Undivided Profits/
(Losses), as well as those not yet credited/
debited to Undivided Profits/(Losses);
(3) Net Unrealized Gains/(Losses) on
ASS Financial Assets recognized directly
in equity; and
(4) Gains/(Losses) on Fair Value
Adjustments of Hedging Instruments
recognized directly in equity;
X564 - X565
08.12.31
results to a net debit balance, the bank

shall transfer from the RBU book to the
FCDU/EFCDU
immediately
the
abovementioned eligible foreign currency
assets by a credit to the Due to RBU FCDU/EFCDU Unrealized Losses
Recognized in Profit or Loss and in Equity,
which account shall not be subject to asset
and liquid asset cover requirements.1
The amount of eligible foreign
currency assets to be transferred from the
RBU book to the FCDU/EFCDU shall be
that which will bring the balance of Due
to RBU - FCDU/EFCDU Unrealized
Losses Recognized in Profit or Loss and in
Equity equal to the net debit balance of
the immediately preceding Items "1" to
"4" above.
Whenever the Due to RBU - FCDU/
EFCDU Unrealized Losses Recognized in
Profit and Loss and in Equity exceeds the
net debit balance of the immediately
preceding Items "1" to "4" above, the
excess shall be settled by the FCDU/
EFCDU to the RBU book by a credit to
the abovementioned eligible foreign
currency assets at the end of the
reference month.
The illustrative accounting entries are
(Circular No. 601 dated 13 February 2008 as amended by
Circular No. 629 dated 31 October 2008)
Sec. X565 Conversion to Peso Loans/

ROPA and Transfer to RBU of FCDU/
EFCDU Loans/ROPA. The following are
the policy guidelines on the conversion and
transfer of foreign currency-denominated
loans, and ROPA in the books of the FCDU/
EFCDU to peso loans and ROPA in the
books of the RBU:
a. FCDU/EFCDU loans may be
transferred to the RBU without prior BSP
approval, subject to the following conditions:
(1) the FCDU/EFCDU loan to be
transferred must meet the following criteria:
(a) current and performing; and (b) eligible

to be serviced by the banking system:
Provided, That a past due FCDU/EFCDU
loan may be transferred to the RBU if it meets
the following criteria: (a) eligible to be
serviced by the banking system; (b) fully
secured by real estate mortgage; (c)
foreclosure of the collateral shall be effected
within six (6) months from the date of transfer
to the RBU if the loan remains to be past
due; and (d) they are not eligible to be
serviced by the banking system but loan is
already outstanding as of 27 October 2000:
Provided, further, That a past due partially
secured or unsecured FCDU/EFCDU loan
shall only be eligible for conversion/
transfer to RBU if part of a multi-creditor
rehabilitation or work-out plan
acceptable to all creditors where the said
plan requires the conversion of FCDU/
EFCDU loans to peso;
(2) there shall be actual settlement in
foreign currency, simultaneous with the
transfer, by the RBU to the FCDU/EFCDU
of the total amount of foreign currencydenominated loans being transferred to the
RBU using the prevailing foreign exchange/
conversion rate at the time of transfer;
(3) the transfer and conversion of
foreign currency-denominated loans from
the FCDU/EFCDU books to the RBU
books including the prevailing foreign
exchange/conversion rate to be used shall
have the prior approval of the banks board
of directors, or the Country Head, in case
of branches of foreign banks, and the prior
written consent of the borrower whose
account will be transferred/converted,
except for loans covered by credit/loan
agreement allowing the bank to
unilaterally convert and transfer the FCDU/
EFCDU loan in which case the prior written
consent requirement may be dispensed
with;
(4) the converted/transferred FCDU/
EFCDU loans are properly documented/
1
From 31 October 2008 to 31 March 2009, banks may add back the resulting net debit balance in the total of Item Nos. 1
to 4 above to total assets in the FCDU/EFCDU book for purposes of determining compliance with the 100% asset cover
requirement instead of transferring eligible foreign currency assets from the RBU book to FCDU/EFCDU book.
Part V - Page 15
X565 - X599
05.12.31
covered by a written agreement/contract:

Provided, That if the original loan agreement
allows the bank to unilaterally convert/transfer
the FCDU/EFCDU loan to peso, the said loan
agreement should indicate the general
terms and conditions of the converted/
transferred peso loan: Provided, further,
That upon conversion/transfer, the
borrower must be informed in writing of
the peso loans new terms and conditions:
Provided, finally, That once converted/
transferred to a peso loan, the same loan
should not be converted back to an FCDU/
EFCDU loan;
(5) no income shall be recognized by
the FCDU/EFCDU or RBU on the transfer
of FCDU/EFCDU loans to RBU;
(6) the status of the FCDU/EFCDU loan
prior to the transfer, i.e., current or past due,
performing or non-performing, and the loan
classification, i.e., especially mentioned,
substandard, doubtful or loss, shall be
retained once the loan is transferred to the
RBU books, which transfer shall also
include the corresponding booked
allowance for probable losses;
b. FCDU/EFCDU ROPAs may also be
transferred to the RBU without prior BSP
approval, subject to Items (2) to (6) above;
c. Conversions and transfers of
FCDU/EFCDU loans and ROPA to RBU
books that do not meet the above
guidelines shall be subject to prior
Monetary Board approval; and
Part V - Page 16
d. All foreign currency-denominated

loans and ROPA in the FCDU/EFCDU
converted to peso and transferred to the
books of the RBU shall be reported
monthly to the appropriate department
of the SES within ten (10) banking days
from end of reference month. The report,
classified as Category B, shall include
name of borrower, date transferred/
converted, outstanding balance in
foreign currency in the FCDU/EFCDU,
peso amount booked in the RBU,
prevailing foreign exchange rate used,
status and classification on date of
transfer, collateral (if any) and date
approved by banks board/Country Head.
A report is not required if no transfers
were effected during the month.
The prescribed accounting entries on
the conversion and transfer of FCDU/
EFCDU loans and ROPA to RBU books
Sanctions Any violation of the provisions
and 37 of R.A. No. 7653.
R.A. No. 7653 on banks, their directors
X601 - X601.1
08.12.31
PART SIX
MISCELLANEOUS
A. OTHER OPERATIONS
Section X601 Open Market Operations
The following rules and regulations shall
govern the buying and selling of
government securities in the open market,
pursuant to Section 91 of R.A. No. 7653.
a. The BSP may buy and sell in the
open market for its own account:
(1) Evidences of indebtedness issued
directly by the Government of the
Philippines or its political subdivisions; and
(2) Evidences of indebtedness issued
by government instrumentalities and fully
guaranteed by the Government.
The above evidences of indebtedness
must be freely negotiable and regularly
serviced. Purchases and sales in the
open market shall be made through
banks, QBs and accredited government
securities dealers.
b. Outright purchases and sales of
government securities shall be effected at
prevailing market prices.
c. Repo agreements shall be open to
banks (except RBs), QBs, and accredited
government securities dealers and shall be
made under the terms provided for in
Subsec. X601.1 and the following:
(1) The repo agreement may be paid
at any time before maturity, subject to
mutual agreement of both parties;
(2) In the event the securities covered
by the repo agreement are not repurchased
by the issuer of such agreement, the same
may be sold in the open market or transferred
to the BSP portfolio; and
(3) Should an issuer of a repo
agreement become no longer qualified as
such, its outstanding repo agreement shall
immediately become due and payable. If
settlement of the amount due is not made
within three (3) days from the date of its

disqualification, the BSP shall proceed to
collect said amount in accordance with the
preceding paragraph.
d. Reverse repo agreements covering
the sale of portion of the security holdings
of the BSP portfolio may be made under
the terms provided for in Subsec. X601.2.
e. The purchase and sale of
government securities by the National
Treasury and government-owned or
controlled corporations shall be made only
with (a) the BSP; (b) the DBP, the LBP, the
SSS, the GSIS, the Al-Amanah Islamic
Investment Bank of the Philippines and
banks that are wholly-owned or controlled
by these institutions; and (c) the Philippine
Veterans Bank. Transactions shall be done
with the bank proper and not through its
trust department.
X601.1 Repurchase agreements
with Bangko Sentral
a. Repo agreements may be effected
with the BSP subject to the following terms
and conditions:
(1) Rate. The rates on the repo
agreement facility shall be set by the
Treasury Department, with the
concurrence of the Governor, taking into
account prevailing liquidity/market
conditions.
(2) Term. At the option of the Treasury
Department, availments may be for a
minimum of one (1) day (overnight) and a
maximum of ninety-one (91) days.
(3) Security. Only obligations of the
National
Government
and
its
instrumentalities and political subdivisions,
which are fully guaranteed by the
Government, with a remaining maturity of
not more than ten (10) years and which are
Part VI - Page 1
X601.1 - X601.2
08.12.31
freely negotiable and regularly serviced,

shall be eligible as underlying instruments
for repo agreements subject to the collateral
requirement prescribed by the BSP.
(4) Delivery. Delivery of the
underlying instruments shall be made to
the BSP at the prescribed time. For
overnight repo agreements, delivery of the
underlying instruments shall be made not
later than 12:00 noon of the date of
transaction.
Government securities which are held
by the issuer of the repo agreement under
the book-entry system with the BSP may
be used as underlying instruments only
with the conformity of the BSP.
(5) Upon termination of the repo
agreement, the issuer of such agreement
shall claim and take delivery of the
underlying instruments at the Treasury
Department, BSP. Failure to claim and take
delivery of the underlying instruments
immediately upon such termination shall
relieve the BSP of any liability or
responsibility for the loss or misplacement
of said instruments.
b. US dollar (USD) denominated repo
agreement facility may likewise be effected
with the BSP, subject to the following terms
and conditions, and as may be provided
under the repo agreement facility:
(1) Eligible borrowers. The USD
denominated repo agreement facility shall
only be available to banks with legitimate
foreign currency denominated funding
needs as may be provided under the repo
agreement facility: Provided, That the
borrowing shall be for the account of the
applicant bank and shall not be used to fund
liquidity requirements of foreign branches,
affiliates, or subsidiaries.
(2) Collateral. Only USD denominated
obligations of the National Government of
the Republic of the Philippines shall be
eligible as collateral.
(3) The guidelines on the availment of
USD denominated repo agreement with
the BSP are shown in Appendix 86.
Part VI - Page 2
The Monetary Board may, at its

discretion, impose any or all of the following
sanctions to a bank and/or its director/s or
officer/s found to be responsible for violation
of the provisions on the terms and conditions
of the USD denominated repo agreement
with the BSP :
(1) Termination of eligibility and
pre-termination of any outstanding balance
through repayment and/or sale of the
collateral;
(2) Fine of up to P30,000 per
transaction per day of violation reckoned
from the time the violation was committed
up to the date it is corrected;
(3) Suspension of interbank clearing
clearing;
(4) Suspension of access to BSP
(5) Suspension of lending or foreign
(6) Revocation of authority to perform
trust operations;
(7) Revocation of quasi-banking
license;
(8) Suspension for 120 days without
pay of the officers and/or directors
responsible for the violation; and
(9) Other sanctions as may be
provided by law.
(As amended by Circular Nos. 631 dated 12 November 2008,
627 dated 23 October 2008, M-2008-034 dated 12 November
2008 and M-2008-031 dated 23 October 2008)
X601.2
Reverse repurchase
agreements with Bangko Sentral. Reverse
repo agreements may be effected with the BSP
subject to the following terms and conditions:
a. Rate. The rates shall be set by the
Treasury Department, with the concurrence
of the Governor, taking into account the
prevailing liquidity/market conditions.
b. Term. At the option of the Treasury
Department, availments may be for a
minimum of one (1) day (overnight) and a
maximum of 364 days.
X601.2 - X602
08.12.31
c. Security. The collateral shall consist

of obligations of the National Government
and other freely negotiable securities in
the BSP portfolio valued at 100%.
d. Delivery. No delivery of the
collateral shall be made, but a custody
receipt shall be issued instead.
e. Reservation. Prepayment may be
made by the BSP at its option anytime
before maturity.
Effective 01 July 2003, published
interest rates that will be applied on BSPs
reverse repo agreements with banks shall
be inclusive of Value Added Tax (VAT).
Reverse repo agreements entered
into by the BSP with any AAB are
included in the definition of the term
deposit substitutes under Sec. 22 (y)
Chapter 1 of the National Internal
Revenue Code of 1997.
The BSP shall withhold twenty percent
(20%) Final Withholding Tax (FWT) on its
overnight reverse repo agreements
starting January 1, 2008, under the
(1) All overnight reverse repo
agreements with the BSP shall be
subject to the twenty percent (20%) FWT
in the same manner as term reverse repo
agreements, which tax is deducted on
each maturity date and remitted to the
BIR;
(2) The total twenty percent (20%)
FWT on the overnight reverse repo
agreements due starting 01 January 2008
until 08 September 2008 shall be divided
equally in the remaining months of taxable
year 2008. The installments due will be
deducted every end of the month from the
RDDA of concerned banks; and
(3) Concerned banks shall issue the
corresponding debit authority to the BSP
to cover the twenty percent (20%) FWT
on their overnight reverse repo
agreements with the BSP mentioned in
Item 2 above.
X601.3 Settlement procedures on

the purchase and sale of government
securities under repurchase agreements
with the Bangko Sentral. Purchase and sale
of government securities under repo
agreements (GS/repo agreements) between
and among banks and QBs and BSP in
connection with the latters open market
operations shall be settled in accordance with
the provisions of the agreement for the
PhilPaSS executed on 12 December 2002
between the BSP and BAP/CTB/RBAP and
any subsequent amendments thereto.
(As superseded by the agreement between the BSP and BAP/
CTB/RBAP dated 12 December 2002)
X601.4- X601.5 (Reserved)

X601.6 BSP trading windows and
services during public sector holidays. The
guidelines on BSPs trading windows and
services during public sector holidays are
(M-2008-025 dated 13 August 2008)
Sec. X602 Derivatives. A bank may

engage in authorized derivatives activities:
Provided, That the bank:
a. Understands, measures, monitors
and controls the risks assumed from its
derivatives activities;
b. Adopts effective risk management
practices whose sophistication are
commensurate to the risks being
monitored and controlled; and
c. Maintains capital commensurate
with the risk exposures assumed.
Further, a bank may likewise engage
in financial derivatives activities in
accordance with these guidelines. The
transacting bank shall have the
responsibility to comply with the
guidelines set out in this Section, including
the relevant appendices, and other
applicable laws, rules and regulations
governing derivatives transaction. In case
of derivatives instruments involving
Part VI - Page 3
X602
08.12.31
foreign currencies and/or other foreign

currency denominated assets, the
transacting bank shall observe the pertinent
FX rules and regulations. For purposes of
these guidelines, a bank that transacts
(i.e., transacting bank) whether as end-user,
broker or dealer, in derivatives instruments
is considered to be engaging in a
derivatives activity.
Derivative is broadly defined as a
financial instrument that primarily derives
its value from the performance of an
underlying variable. For purposes of these
guidelines, a financial derivative is any
financial instrument or contract with all of
the following characteristics:
a. Its value changes in response to a
change in a specified interest rate, financial
instrument price, commodity price, FX
rate, index of prices or rates, credit spread,
credit rating or credit index or other
variables not prohibited under existing
laws, rules and regulations (the
underlying);
b. It requires either no initial net
investment or an initial net investment that
is smaller than would be required for other
types of contracts that would be expected
to have a similar response to changes in
market factors; and
c. It is settled at a future date.
Financial derivatives activities shall
also include transactions in cash
instruments with embedded derivatives
that reshape the risk-return profile of the
host instrument, such as credit-linked notes
(CLNs) and other structured products
(SPs).
A market participant may take any of
the following roles in a derivatives
transaction:
a. An end-user is defined as a financial
market participant that enters, for its own
account, in a derivatives transaction for
legitimate economic purposes. These
purposes may include, but are not limited
to, the following: hedging, proprietary
Part VI - Page 4
trading, managing capital or funding costs,

obtaining indirect exposures to desired
market factors, investment, yieldenhancement, and/or altering the
risk-reward profile of a particular item or
an entire balance sheet.
An end-user may be classified
according to its financial sophistication:
(1) Market counterparty - refers to any
UB or KB, only with respect to the
instruments for which it is authorized to
engage in as a dealer.
(2) Institutional counterparty - refers to
an institution which is not a market
counterparty and has the level of net worth,
knowledge, expertise, and experience to
deal with financial derivatives.
(3) Sophisticated individual end-user refers to an individual who has demonstrated
to the bank as having the level of net worth,
knowledge and experience in dealing with
financial products, including financial
derivatives. An individual may register as a
sophisticated individual end-user with the
Centralized Applications and Licensing
Group of the BSP.
(4) Other end-user - This refers to all
other institutional or individual clients not
categorized as market counterparty,
institutional counterparty or sophisticated
individual end-user.
b. A broker is a financial market
participant that facilitates a derivatives
transaction between a dealer and its client,
for a fee or commission. The counterparties
to the derivatives contract are the client and
an authorized dealer.
c. A dealer is defined as a financial
market participant that engages in a
derivatives activity as an originator of
derivatives products or as market-maker
in derivatives products. A dealer can
distribute its own derivatives products,
including those of others. A dealer can also
act as broker and/or end-user of derivatives
instruments.
X602.1
08.12.31
X602.1 Generally authorized

derivatives activities. A bank may engage
in the following derivatives activities
without need of prior BSP approval:
Provided, That it observes the provisions
of Appendix 25 and meets the following
conditions:
a. UBs and KBs may transact in the
following derivatives in the capacities
specified:
(1) As a dealer. A UB or KB may originate
and distribute the following organized
market-traded financial derivatives:
(a) FX forwards, FX swaps, currency
swaps and analogous financial futures with
a tenor of three (3) years or less; and
(b) Interest rate swaps, forward rate
agreements and analogous financial futures
with a tenor of ten (10) years or less: Provided,
That the issuance of sub-participation in any
derivatives held as an end-user shall be
deemed as undertaking the role of a dealer:
Provided, further, That the dealer UB or KB
observes the provisions of Appendix 26 and
other pertinent securities laws, rules and
regulations.
For purposes of this Subsection, an
organized market refers to an exchange or
a BSP-recognized over-the-counter market
governed by transparent and binding market
conventions on price transparency, trade
reporting, market surveillance and orderly
conduct/operations of the market.
(2) As end-user1.
(a) A UB or KB, including its trust
department, may enter in any financial
derivatives transaction for the purpose of
hedging its own risks: Provided, That it
observes all the requirements for hedging
transactions under PAS.
(b) A UB or KB may trade with
counterparties in order to take positions for
its own account in organized market - traded
financial instruments enumerated under Item
"1" above. It can also take long positions
in naked FX options with a tenor of three

(3) years or less.
(c) RBU and EFCDU of UBs and KBs,
including its trust departments, may invest,
for their own account, in the following SPs:
(i) Principal-protected
foreign
currency-denominated SPs, the revenue
streams of which are linked to interest
rate indices, interest rate instruments,
listed equity shares or indices, FX rates,
credit rating or index, or gold: Provided,
That the maximum contractual maturity
shall be five (5) years;
(ii) Plain vanilla single-name CLNs
where the reference asset is an obligation
issued or guaranteed by the Republic of the
Philippines.
Provided, That the bank or trust entity
shall comply with the following conditions:
(aa) Total carrying value of all
investments in SPs shall not exceed 100%
of the banks qualifying Tier 1 capital or
fifty percent (50%) of a trust entitys trust
assets; and
(bb) For investments in SPs under the
EFCDU, total carrying value of SPs as
defined herein shall also not exceed twenty
percent (20%) of the total FCDU assets:
Provided, That SPs which are not booked in
an investment account (e.g., booked as
inter-bank loans), for this purpose, shall be
considered as part of the EFCDU assets.
An SP is considered principal-protected
if the minimum all-in return for such
investment is at least zero and such
minimum all-in return is guaranteed by an
entity (i.e., issuer or a third party) rated at
least A or its equivalent by an
international rating agency acceptable to
the BSP or fully collateralized by an asset
with equivalent credit quality.
(3) As a broker. A UB or KB may facilitate
derivatives transactions between dealers and
market and/or institutional counterparties
and/or sophisticated individual end-users:
1
All transactions involving warrants issued under the ROPs Paired Warrants Program shall be considered as among the
generally authorized derivatives activities that banks (including TBs and RBs/Coop Banks) may engage in as end-user,
without need for additional derivatives authority required under this Subsection: Provided, That banks holding such
instruments shall comply with the requirements of Appendix 25, where applicable.
Part VI - Page 5
X602.1 - X602.2
08.12.31
Provided, That the UB/KB, acting as broker,

ensures that its client fully understands its
limited responsibility as a broker:
Provided further, That the bank adheres to
procedures for evaluating client suitability,
including risk disclosures, as prescribed in
Appendix 26: Provided finally, That the
bank complies with other pertinent
securities laws, rules and regulations.
b. TBs, RBs and Coop Banks may
enter in derivatives transactions as end-user
with BSP - authorized dealers and brokers
solely for hedging purposes: Provided, That
they observe all the requirements for
hedging transactions under PAS1. A TB, RB
or Coop Bank may apply for a Type 3
authority to enter into derivatives
transactions as end-user for purposes other
than hedging: Provided, That the applicant
bank agrees to be covered by all
regulations prescribing capital for market
risk, notwithstanding any provision to the
contrary; and
c. A trust department of a UB or KB
may transact, as an institutional
counterparty, with financial derivatives
instruments enumerated under Subsec.
X602.1(a)(2) on behalf of its trustor/
principal/s as may be authorized by such
trustor/ principal/s: Provided, That the trust
department observes the relevant
provisions of Appendices 25 and 26. Trust
entities other than that within a UB or KB
may apply for a Type 3 authority to enter
on behalf of its trustor/principal/s in
derivatives transactions under Subsec.
X602.1(a)(2). Any trust entity may also
apply for Type 3 authority in order to
transact as end-user on behalf of its trustor/
principal/s with derivatives instrument
outside those enumerated under Subsec.
X602.1(a)(2).
(As amended by Circular Nos. 605 dated 05 March 2008 and
594 dated 08 January 2008)
X602.2 Activities requiring additional

derivatives authority. A bank shall apply
for prior BSP approval of additional
derivatives authority to engage in all other
financial derivatives activities not
expressly allowed in Subsec. X602.1. A
bank may apply for two (2) or more
additional authorities. A bank applying for
additional derivatives authority/ies must
have and maintain a risk management
system commensurate to the additional
authority/ies being applied for, in
accordance with the provisions of
Appendix 25 and meet other conditions
specified under this Subsection.
a. Classification of additional
derivatives authority
(1) Type 1Expanded dealer authority
A UB or KB may apply for a Type 1
authority. A bank with Type 1 authority
may transact in any financial derivatives
as a dealer: Provided, That a bank with
Type 1 authority shall comply with the sales
and marketing guidelines prescribed in
Appendix 26. A bank with Type 1 authority
may likewise transact in any financial
derivatives as a broker and an end-user.
The BSP expects banks applying for
Type 1 authority to institutionalize a
(a) comprehensive and integrated risk
management system; and (b) sales and
marketing practices that are deemed
appropriate and adequate for the different
derivatives activities it expects to engage
in. It must be rated at least CAMELS (or
ROCA for branches of foreign banks) of
4 or better over-all, notwithstanding any
provision to the contrary.
(2) Type 2 Limited dealer authority
A UB or KB may apply for a Type 2
may operate as a dealer in specific types
of derivatives products with specific
underlying reference, as applied for by
All transactions involving warrants issued under the ROPs Paired Warrants Program shall be considered as among the
generally authorized derivatives activities that banks (including TBs and RBs/Coop Banks) may engage in as end-user,
without need for additional derivatives authority required under this Subsection: Provided, That banks holding such
instruments shall comply with the requirements of Appendix 25, where applicable.
1
Part VI - Page 6
X602.2
08.12.31
the bank, outside those financial

derivatives instruments under Subsec.
X602.1(a)(1): Provided, That a bank with
Type 2 authority shall comply with the
sales and marketing guidelines
prescribed in Appendix 26. The Type 2
authority also carries authority to transact
as broker and end-user of the said specific
derivatives instruments.
(3) Type 3 Limited user authority
Any bank may apply for a Type 3
may transact, as an end-user, in specific
types of derivatives products, with specific
underlying reference, as applied for by the
bank, outside of those instruments under
Subsec. X602.1(a)(2). However, as regards
a TB, RB or Coop Bank and trust entity other
than that within a UB or KB, a Type 3
authority will enable said bank/entity to
transact as end-user of a derivative instrument
as may be applied for by the bank/entity.
(4) Type 4 Special broker authority
A bank, other than a UB or KB, may
apply for a Type 4 authority. A bank with
Type 4 authority may facilitate a derivatives
transaction between a UB or KB, as dealer,
and market and institutional counterparties
and sophisticated individual end-users:
Provided, That the bank, acting as broker,
ensures that its client fully understands its
limited responsibility as a broker and
observes the provisions of Appendix 26.
A UB or KB may likewise apply for a
Type 4 authority to enable itself to broker
a derivatives transaction for or with other
end-users.
A bank with additional Type 1, 2 or 4
authorities shall be responsible for
complying with pertinent securities laws,
types of derivatives are classified as
follows: forwards, swaps and options.
Underlying reference pertains to the
following: interest, FX, equity, credit and
commodity.
b. Qualification requirements. A
bank applying for additional authority to
engage in expanded derivatives activities
shall:
(1) Demonstrate adequate competence
in its general operations as evidenced by:
(a) CAMELS (or ROCA for branches
of foreign banks) composite rating of at
least 3 with a similar rating for
Management;
(b) No unresolved major safety and
soundness issues that threaten liquidity or
solvency; and
(c) Substantial compliance with
regulations on anti-money laundering,
corporate governance and risk
management.
(2) Hold capital commensurate to the
risks assumed or to be assumed from the
derivatives activities. The BSP expects a
bank applying for or holding additional
derivatives authority to have adequate
capital to accommodate existing and future
risks from additional and generally
authorized derivatives activities as well as
risks arising from the banks other business
activities. For this purpose, the BSP may
require capital higher than the minimum
required under prudential regulations.
(3) Have and maintain a risk
management system that conforms to the
principles and complies with the minimum
standards prescribed in Appendix 25.
c. Applicability to trust entities. Trust
entities may apply for Type 3 authority:
Provided, That they comply with the
requirements prescribed and observe the
provisions of Appendix 26.
d. Application procedures. The
applicant shall submit to the Capital
Markets Specialist Group, SES of the BSP
a written application for additional
derivatives authority/ies accompanied by:
(1) A copy of the board resolution (or
equivalent management review body in
the case of branches of foreign banks or
trust committee, in case of trust entities)
Part VI - Page 7
X602.2 - X602.3
08.12.31
approving the application for a specific type

of derivatives authority;
(2) A notarized certification signed
jointly by the president, treasurer and
compliance officer of the applicant-bank (or
two (2) authorized signatories of equivalent
rank of the trust committee in case of trust
entities), stating that the bank complies
with all the requirements for the authority
being applied for specified in Subsec.
X602.2; and
(3) A list of the types of derivatives and
underlying reference the bank intends to
engage in, including the following
information for each derivatives class or
type:
(a) Target customers for such
derivatives;
(b) The capacity in which the bank
intends to engage in such derivatives;
(c) Description of each type of
derivatives and underlying reference with
which it will deal;
(d) Analysis of the risks involved in
transacting in each type of derivatives;
(e) Procedures/methodologies that the
bank will implement to measure, monitor
(including risk management reports) and
control the risks inherent in the types of
derivatives;
(f) Relevant accounting guidelines,
including pro-forma accounting entries;
(g) Analysis of any actual or potential
legal/regulatory restrictions; and
(h) Process flow chart, from deal
initiation to risk reporting, indicating the
departments and personnel involved in
identified processes.
(4) Payment of a non-refundable
processing fee amounting to:
Authority
Type 1
Type 2
Type 3
Type 4
Amount
P 200,000
100,000
50,000
25,000
25,000
Part VI - Page 8
(UBs and KBs)

(other applicants)
(all banks)
(5) The BSP will not accept

applications lacking any of the abovestated requirements. The BSP, however,
may require additional documents to aid
its evaluation of the application. By virtue
of the application, the applicant
automatically authorizes the BSP to
conduct an on-site evaluation of the
applicants risk management capabilities,
if this is deemed necessary.
(6) Type 1 authority shall be subject
to approval by the Governor, upon
recommendation of the Deputy Governor,
SES. All other applications for additional
authority/ies shall be subject to approval
by the Deputy Governor, SES.
(7) A bank whose application for
additional derivatives authority/ies or an
upgrade thereof (e.g., from Type 2 to Type
1 authority) has been denied cannot submit
a new application for additional derivatives
authorities until after six (6) months from
receipt of denial. The same rule applies
for a bank whose authorities have been
limited or downgraded.
(8) A bank that holds an additional
derivatives authority may apply for
additional derivatives authorities (e.g.,
currently holding Type 3 authority who
wish to apply for Type 4 authority) or an
upgrade thereof only after the lapse of six
(6) months from the grant of the previous
additional derivatives authority.
X602.3 Intra-group transactions. All

derivatives transactions between a bank
and any of its subsidiaries and affiliates
shall comply with minimum risk
management standards for related-party
transactions outlined in Appendix 25, as
part of the banks internal control
procedures. The BSP expects banks to
establish internal reporting and
monitoring system for derivatives
activities for related-party transactions.
Failure to comply with minimum
X602.3 - X602.6
08.12.31
standards shall be a ground for citing

non-compliance with Subsecs. X602.1 and
X602.2 without prejudice to other BSP
rules and regulations such as those related
to corporate governance and unsafe and
unsound banking practices.
X602.4 Accounting guidelines. A bank

that engages in derivatives activities must
strictly account for such transactions in
accordance with PAS.
X602. 5 Reporting requirements. A

bank or trust department/entity engaged
in any derivatives transaction shall submit,
in addition to the derivatives reports
enumerated under the BSP FRP, a monthly
report on derivatives transactions/
outstanding derivatives within fifteen (15)
banking days from end of the reference
month. The reports shall be certified by
the treasurer.
X602.6 Sanctions
a. Unauthorized transactions. Sanctions
prescribed under Sections 36 and 37 of
R.A. No. 7653 shall be imposed on any
bank (including its directors and officers)
found to have engaged in an unauthorized
derivatives activity.
A bank undertaking unauthorized
derivatives activities may be considered
as conducting its business in an unsafe and
unsound manner under Section 56 of
R.A. No. 8791.
b. Delayed/erroneous/inaccurate
reporting. Banks failing to submit the reports
required under Subsec. X602.5 within the
prescribed deadline shall be subject to
monetary penalties applicable for delayed
reporting under existing regulations.
Moreover, submission of incomplete,
uncertified or improperly certified or
otherwise erroneous reports shall be
considered non-reporting, subject to

applicable penalties for amended/delayed
reports. For purposes of imposing
monetary penalties, the reports shall be
classified as a Category A-1 report.
Habitual delayed or erroneous reporting
may be a ground for further sanction,
including limitation of generally authorized
activities and/or additional authorities
and/or suspension of authority to engage
in such derivatives activities.
c. Non-compliance with the provisions
of Sec. X602 and its Subsections and
Appendices 25 and 26. Any bank/trust entity
found violating any of the provisions of
Sec. X602 and its Subsections, and/or
Appendices 25 and/or 26 shall be
sanctioned with the penalties prescribed
under Sections 36 and 37 of R.A. No. 7653
in accordance with the gravity/seriousness
of the offense taking into consideration the
number of times the offense was
committed, possible consequent losses on
the clients, effect on the financial markets
and other relevant factors.
d. Curtailment of derivatives
authority. The BSP reserves the right to
suspend, modify, downgrade, limit or
revoke any banks derivatives authority
(including any or all of those generally
authorized activities) for prudential
reasons as may be evidenced by any or
all of the following:
(1) The bank is assigned a CAMELS
(or ROCA in the case of branches of
foreign banks) composite rating or
component management rating of lower
than that prescribed under Subsec.
X602.2, in the most recent regular
examination.
(2) The bank has not maintained
adequate risk management systems
given the level and type of derivatives
activities it has engaged in as may be
determined by the BSP in any on-site
evaluation and confirmed by the
Monetary Board.
Part VI - Page 8a
X602.6 - X602.15
08.12.31
(3) The Monetary Board has confirmed

an SES finding that the bank has conducted
business in an unsafe and unsound manner.
An erring bank may apply for
reinstatement of its derivatives authority
only after six (6) months from lapse of the
implementation of the sanction: Provided,
That the bank has satisfactorily addressed
all BSP concerns.
Transitory provisions. Expanded or any
other derivatives authority granted prior to
30 January 2008 shall be operative for one
(1) year from the said date: Provided, That
a bank undertaking any derivatives
activities pursuant thereto shall
immediately comply with the pertinent
provisions of Appendices 25 and 26. A bank
which intends to continue its existing
derivatives authority not covered by those
generally authorized under Subsec.
X602.1, must submit an application for the
appropriate additional derivatives authority
within the one (1) - year transitory period.
After the lapse of the one (1) - year
transitory period, a bank can only perform
those activities which are permissible
under Sec. X602 and its Subsections.
A bank whose SPs, as of 30 January 2008,
exceed the prudential limits prescribed
under Subsec. X602.1(a)(3) may maintain
existing positions but cannot increase its
exposures or invest in additional SPs until such
time when its exposure levels are within the
prescribed limits.
X602.7 - X602.13 (Reserved)

X602.14 Forward and swap
transactions
Statement of policy. It is the policy of
the BSP to support the deepening of the
Philippine financial markets. In line with
this policy, customers may, thru FX
forwards, hedge their market risks arising
from FX obligations and/or exposures:
Provided, That forward sale of FX
Part VI - Page 8b
(deliverable and non-deliverable) may

only be used when the underlying
transaction is eligible for servicing by the
banking system under Circular No. 1389
dated 13 April 1993, as amended.
Customers may, likewise, cover their
funding requirements thru FX swaps.
Banks may only engage in FX forwards
and swap transactions with customers if the
latter is hedging market risk or covering
funding requirements. There shall be no
double/multiple hedging such that at any
given point in time, the total notional
amount of the FX derivatives transaction/s
shall not exceed the amount of the
underlying FX obligation/exposure.
The customer shall no longer be
allowed to buy FX from the banking
system for FX obligations/exposures that
are fully covered by deliverable FX
forwards and FX swaps.
The following guidelines, as well as
minimum documentary requirements, shall
cover FX forward and swap transactions
involving the Philippine peso between
authorized dealer banks and their customers.

a. Credit default swaps (CDS) - refers
to a financial contract between two (2)
parties, the protection buyer and
protection seller, with reference to a
certain notional value of a reference
credit or a basket of reference credits,
whereby the former pays a premium to
the latter, and in return the latter agrees
to make certain protection payments to
the former contingent upon the
occurrence of a credit event with respect
to the reference entity(ies)/asset(s).
b. Credit-linked note (CLN) refers
to a pre-funded credit derivative
instrument under which the note holder
effectively accepts the transfer of credit risk
pertaining to a reference asset or basket of
assets issued by a reference entity/ies. The
X602.15
08.12.31
repayment of the principal to the note

holder is contingent upon the occurrence
of a defined credit event. In consideration
thereof, the note holder receives an
economic return reflecting the underlying
credit risk of the reference assets. For
purposes of Sec. X602, the term shall
generically include similar instruments
such as credit-linked deposits (CLDs) and
credit-linked loans (CLLs). Unless
otherwise stated, the term shall refer only
to plain vanilla CLNs. Plain vanilla CLNs
are composed of a debt or deposit
instrument and a CDS. Non-plain vanilla
CLNs are those that are leveraged and/or
include features of other SPs (e.g., coupon
payments linked to interest or FX rate
movements) and/or contains more than
one (1) embedded derivative.
c. Currency swaps - refers to an
arrangement in which two parties
exchange a series of cash flows in one (1)
currency for a series of cash flows in
another currency, at specified exchange
and/or interest rates and at agreed intervals
over an agreed period.
d. Forward FX contracts - refers to an
agreement for delayed delivery of a foreign
currency in which the buyer agrees to
purchase and the seller agrees to deliver
at a specified future date a specified amount
at a specified exchange rate.
e. Forward rate agreement (FRA) refers to an agreement fixing the interest
rates for a specified period whereby the
buyer receives (or pays) and the seller pays
(or receives) the interest rate differential if
the reference rate rises above (or falls
below) the contract rate, respectively.
f. FX exposure - refers to an FX risk
arising from an existing commitment to or
from a non-resident or AAB which leads
to payment of an FX obligation or receipt
of an FX asset based on verifiable
documents on deal date.
g. FX obligation refers to an actual
FX commitment to a non-resident or any
AAB where the amount, payment tenor and

party have been determined.
h. FX options refers to option
contracts which convey the right or the
obligation depending upon whether the
bank is the purchaser or the writer,
respectively to buy or sell at a specified
price by a specified future date, for a fee or
a premium, two (2) different currencies at
a specified exchange rate.
i. FX swaps - refers to an agreement
involving an initial exchange of two (2)
currencies, usually at the prevailing spot
rate, and a simultaneous commitment to
reverse the exchange of the same two
(2) currencies at a date further in the
future at a rate (different from the rate
applied to the initial exchange) agreed
on deal date.
j. Interest rate swaps (IRS) - refers
to an agreement in which the parties
agree to exchange interest cash flows on
a principal amount at certain times in the
future according to an agreed upon
formula.
k. Non-deliverable forward (NDF)
- refers to a forward FX contract where
only the net difference between the
contracted forward rate and the market
rate shall be settled at maturity.
l. Non-resident - refers to an
individual, a corporation or other juridical
person not included in the definition of
resident.
m. Resident - refers to:
(1) An individual citizen of the
Philippines residing therein; or
(2) An individual who is not a citizen
of the Philippines but is permanently
residing therein; or
(3) A corporation or other juridical
person organized under the laws of the
Philippines; or
(4) A branch, subsidiary, affiliate,
extension office or any other unit of
corporations or juridical persons which are
organized under the laws of any country
Part VI - Page 8c
X602.15 - X602.18
08.12.31
and operating in the Philippines, except

OBUs.
n. Structured product (SP) - refers to a
financial instrument where the total return is
a function of one (1) or more underlying
indices, such as interest rates, equities and
exchange rates. It is composed of a host
contract (e.g., plain vanilla debt or equity
securities) and an embedded derivative (e.g.,
swaps, forwards or options) that re-shape the
risk-return pattern of the hybrid instrument.
For purposes of guidelines under Sec. X602,
the term SP does not include asset-backed
securities. Provisions under Sec. 1648 shall
continue to apply for securities overlying
securitization structures.
591 dated 27 December 2007)
X602.16 Documentation. Minimum

documentary requirements for FX forward
and swap transactions in Appendix 58
shall be presented on or before deal date
to the banks unless otherwise indicated.
FX selling banks shall stamp the
supporting documents upon presentation
by customers as follows:
a. For hedging transactions: FX
hedged/deliverable or FX hedged/
non-deliverable";
b. For funding transactions: FX sold,
indicating the contract date and amount
involved, and signed by the banks
authorized officer. Copies of all duly
marked supporting documents shall be
retained by the banks and made available
to the BSP for verification. The retained
copies shall also be marked Documents
Presented as Required and signed by the
banks authorized officer.
X602.17 Tenor/maturity and

settlement
a. Forward sale of FX (whether
deliverable or non-deliverable). The tenor/
maturity of such contracts shall not be
Part VI - Page 8d
longer than: (i) the maturity of the underlying

FX obligation; or (ii) the approximate due
date or settlement of the FX exposure. For
deliverable FX forward contracts, the tenor/
maturity shall be co-terminus with the
maturity of the underlying obligation or the
approximate due date or settlement of the
FX exposure. This shall not preclude
pretermination of the contract due to
prepayment of the underlying obligation
or exposure: Provided, That for foreign
currency loans, prior BSP approval has
been obtained for the prepayment and a
copy of such approval is presented to the
bank counterparty.
b. FX Swaps- No restriction on tenor.
c. Settlement of NDFs - All NDF
contracts with residents shall be settled in
pesos.
d. Remittance of FX proceeds of
deliverable forward and swap contracts
FX proceeds of deliverable forward and swap
contracts shall be delivered by the bank
counterparty directly to the beneficiaries
concerned except for foreign investments
where said FX proceeds are reconverted to
Philippine pesos and reinvested in eligible
peso instrument such as those listed in Item
A.2.2 of Appendix 58. For this purpose,
beneficiaries shall refer to the FCDU of a
bank or a nonresident entity (e.g., creditor,
supplier, investor) to whom the customer is
committed to pay/remit FX.
X602.18 Cancellations, roll overs or

non-delivery of FX forward contracts. All
cancellations, roll-overs or non-delivery of
all FX deliverable forward contracts and the
forward leg of swap contracts shall be
subject to the following guidelines to
determine the validity thereof:
a. Eligibility test - Contracts must be
supported by documents listed in
Appendix 58 hereof.
b. Frequency test - the reasonableness
of the cancellation, roll-over or non-delivery
X602.18 - X602.25
07.12.31
shall be based on the results of the

evaluation of the justification/explanation
submitted by banks as evidenced by
appropriate documents.
c. Counterparty test the cancellation
or roll-over of contracts must be duly
acknowledged by the counterparty to the
contract as shown in documents submitted
by banks, e.g., there should be conforme
of counterparty as evidenced by the
counterparty signature on pertinent
documents.
d. Mark-to-Market test the booking
or recording in the books of accounts of
the profit or loss on contracts and cash flows/
settlement to counterparties must be fully
supported by appropriate documents such
as authenticated copy of debit/credit
tickets, schedules showing among others,
mark-to-market valuation computation, etc.
X602.19 Non-deliverable forward

contracts with non-residents. NDF
contracts to sell FX to non-residents shall
be covered by the provisions of
Section 1602.
X602.20 Compliance with AntiMoney Laundering rules. All transactions
under Subsecs. X602.14 to X602.21 shall
comply with existing regulations on

anti-money laundering under Sec. X691.

Banks duly authorized to engage in
derivatives transactions shall continue to
be covered by the BSPs existing reporting
requirements on financial derivatives.
Cancellations, roll-overs or non-delivery of
deliverable FX forward contracts and under
the forward leg of swap contracts shall be
reported electronically in Excel format to
the BSP not later than five (5) banking days
after reference month as indicated in
Appendix 6.
Swap contracts with counterparties
involving purchase of FX by banks at the
initial leg shall likewise be reported
electronically in Excel format to the BSP not
later than five (5) banking days after reference
month as indicated in Appendix 6.
The reports shall be transmitted to the
International Department at iod@bsp.gov.ph,
copy furnished the SDC at the following
addresses: sdcfxkbdom@bsp.gov.ph (for
domestic banks) and sdcfxkbfor@bsp.gov.ph
(for foreign banks).
X602.22 - X602.25 (Reserved)
(Next page is Part VI - Page 9)
Part VI - Page 8e
X602.26 - 1602
07.12.31
X602.26 Sanctions. Violations of

Subsecs. X602.14 to X602.21 shall be
subject to the penalty provisions under R.A.
No. 7653 (The New Central Bank Act) and
other existing banking laws and regulations.
Failure to comply with Subsec. X602.18
shall result in the exclusion of the forward
contracts in the computation of the banks
consolidated daily position starting from day
one , i.e., when the individual contracts were
entered into. Violations of the prescribed FX
position limits shall be subject to the
following sanctions provided under Circular
Letter dated 13 March 1998:
a. Monetary Penalties
Per Calendar Month
Daily Penalty
1st banking day
P10,000
2nd banking day
20,000
3rd banking day of violation, 30,000
and onwards, or if the excess
FX position of the bank is
thirty percent (30%) or more
of the allowable
limits in any banking day,
regardless of whether a bank
is in the first, second, third or
more days of violation
b. In addition, the following nonmonetary sanctions shall be imposed on the

bank committing violations considered as:
(1) chronic, i.e., when the violation
continues beyond three (3) banking days
within a calendar month, but the excess
position is less than thirty percent (30%) of
the allowable limit; and
(2) abusive, i.e., when the violation
continues beyond three (3) business days
within a calendar month and excess
position is thirty percent (30%) or more of
the allowable limit.
Chronic
violation
Suspension of the banks

rediscounting privileges,
cash dividend declaration
and branching privileges
until the violation is
corrected but in no case
shall such suspension be
less than thirty (30)
calendar days.
Abusive
violation
Suspension of the banks

rediscounting privileges,
cash dividend declaration
and branching privileges
until the violation is
corrected but in no case
shall such suspension be
less than sixty (60)
calendar days.
c. The Monetary Board may impose

other non-monetary sanctions on a bank for
violations determined by BSP as chronic
or abusive on a case-to-case basis,
pursuant to Sec. 37 of R.A. No. 7653.
d. Banks shall be duly advised by the
BSP of their violations and the
corresponding sanctions imposed for such
violations.
e. A monetary penalty imposed on a
bank shall be paid to the BSP Cash
Department, within three (3) banking days
from the banks receipt of advice of said
penalty imposition.
For purposes of imposing sanctions for
delayed, erroneous or unsubmitted reports,
reports required under Subsec. X602.21 are
classified as Category B reports and subject
to corresponding penalties.
Counterparties that habitually cancel
deliverable forwards without proper
justification may be subject of a BSP watchlist.
Sec. 1602 Forward Contracts with NonResidents. All forward contracts to sell
foreign exchange to non-residents
(including OBUs) with no full delivery of
principal, including cancellations, rollovers/renewals shall be submitted for prior
clearance to the BSP. However, every rollover of short-term (ST) deliverable forward
contracts with non-residents need not be
priorapproved, provided:
a. The underlying transaction for each
ST deliverable FX forward contract is a
foreign investment in long-term (LT)
Philippine government securities for which
a Bangko Sentral Registration Document
(BSRD) has been issued;
Part VI - Page 9
1602 - X604.3
07.12.31
b. The roll-over is effected during the

tenor of the underlying LT Philippine
c. The actual delivery/settlement of
the forward contract coincides with the
date of the intended capital repatriation of
the BSP-registered investments;
d. The value of the forward contract
does not exceed the foreign currency
equivalent of the maturity value/net proceeds
of the BSP-registered investments computed
at the agreed forward exchange rate; and
e. The repatriation of capital and
remittance of income for the BSPregistered investment complies with
documentary requirements under existing
BSP rules.
Sec. X603 Clearing Operations. Banks

shall observe the clearing procedures
outlined in Appendix 28 for the clearing
of checks and settlement of interbank
balances through the clearing facilities.
Sec. X604 Collection of Customs Duties/
Taxes/Levies and Other Revenues. The
following regulations shall govern the
collection and reporting of customs duties,
taxes, levies and other revenues through
the banking system.
X604.1 Coverage. All presently
accredited agent banks with demand
deposit accounts with the BSP and
government banks are authorized to
collect (a) customs duties, taxes and
other levies, (b) import processing fees,
and (c) export/premium duties:
Provided, however, That the collection
of taxes from GOCCs shall be made only
through banking offices of government
banks.
X604.2 Collection and reporting of
internal revenue taxes. Banks which are
duly accredited by the BIR to accept
payment of internal revenue taxes shall be
Part VI - Page 10
governed by the relevant BIR Revenue

Regulations.
Deposits of the BIR shall be limited to
those arising from tax collection.
The Authorized Agent Banks (AABs)
shall transfer the deposit collection to the
account of the Treasurer of the Philippines
with the BSP on the sixth day from the day
of deposit of the BIR collections.
customs duties and import processing
fees. Participating banks are authorized to
accept payment of customs duties, taxes
and other levies, and import processing
fees under the following procedures:
a. The collecting bank shall
acknowledge receipt of payments of
customs duties, taxes and other levies, and
import processing fees by issuing Official
Receipts (ORs) in forms to be requisitioned
by the Head Office from the General Services
Division, Bureau of Customs, Manila;
b. The collecting bank shall book all such
collections and credit the same to the special
account "Due to BSP - Bureau of Customs";
c. The branch shall report by
telephone, telex or other means to its Head
Office, at the end of each day, total
collections for the day and the inclusive
serial numbers of ORs issued, to be used
as basis for the preparation by the Head
Office of the Consolidated Report of Daily
Collections of Customs Duties, Taxes and
Other Levies (RC 82-005);
d. The Head Office and its branches
shall accomplish the Abstract of Daily
Collections of Customs Duties, Taxes and
Other Levies (RC 82-006) and submit the
same, duly supported with copies of Orders
of Payment (OPs), ORs, Release Certificates
(RCs) and commercial invoices on the same
day to the offices indicated in the form; and
e. The Head Office of the participating
banks shall consolidate all reports of
collections with those of its branches and
submit the original of the Consolidated
Report on Daily Collections of Customs
X604.3 - X604.5
05.12.31
Duties, Taxes and Other Levies (RC 82-005) to

the Comptrollership Department, BSP, Manila
on the 10th calendar day following the date
of collection. Simultaneously, the
remaining copies shall be distributed to the
offices indicated in the form.
Deposits of the BOC shall be limited to
those arising from customs collection.
The AABs shall transfer the deposit
collection to the account of the Treasurer
of the Philippines with the BSP on the
eleventh day from the day of deposit of
the BOC collections.
export/premium duties. Participating
banks are authorized to accept payment
of export/premium duties under the
a. The collecting bank shall deduct
from the export proceeds the estimated
amount of export/premium duties due
from the export shipment upon
negotiation of the shipping documents
but shall collect the exact and correct
amount of such duties upon presentation
of the OP issued by the Export
Coordinating Division, Bureau of Customs
(For Port of Manila) or the Collector of
Customs concerned;
b. The collecting bank shall issue the
corresponding ORs in forms to be
requisitioned by the Head Office from the
General Services Division, Bureau of
Customs, Manila;
c. The collecting bank shall book all
such collections and credit the same to the
special account Due to BSP-Export/
Premium Duty;
d. The branch/extension office/
agency shall:
(1) Report by telephone, telex or other
means to its Head Office, at the end of
each day, total collections for the day and
the inclusive serial numbers of ORs issued,
to be used as basis for the preparation by
the Head Office of the Consolidated Report
on Daily Collections of Export/Premium

Duty (RC 82-007); and
(2) Accomplish the Abstract of Daily
Collections of Export/Premium Duty
(RC 82-008 ) and submit the same, duly
supported with copies of OPs and ORs,
within ten (10) calendar days from date of
collection to the offices indicated in the
form.
e. The Head Office of the collecting
bank shall:
(1) Consolidate its report of collection
with those of its branches/extension
offices/agencies and submit to the Bureau
of Customs the Consolidated Report of
Daily Collections of Export/Premium Duty
(RC 82-009) on the day following the date
of collection; and
(2) Consolidate the Abstract of Daily
Collections of Export/Premium Duty
(RC 82-010) with those received from
branches/extension offices/agencies.
The original of the Consolidated
Abstract of Collection of Export/Premium
Duty (RC 82-011) shall be submitted to
the Comptrollership Department, BSP,
Manila, on the 10th calendar day
following the date of collection.
Simultaneously, the remaining
copies, with the supporting OPs and
ORs, shall be submitted to the Bureau
of Customs.
X604.5 Remittances thru debit/
credit advices. The Comptrollership
Department, BSP, Manila, shall debit the
demand deposit accounts of the banks
concerned for the total daily collection,
which is due for remittance on the 10th
calendar day from the date of collection
(based on either forms RC 82-005, RC 82007 or RC 82-011). Said Department
shall also credit on the same day the
accoun t o f t h e T r e a s u r e r o f t h e
Philippines for all such remittances of
tax collections, duties, fees and other
levies.
Part VI - Page 11
X604.5 - X604.10
07.12.31
Copies of debit/credit advices to AABs

shall be furnished by the Comptrollership
Department, BSP.
X604.6 Reconciliation of revenue
collections. The Bureau of Customs shall
report to the appropriate department of the
SES, BSP, Manila, any unreported collection
or other discrepancies discovered for
proper examination. The BSP shall take
appropriate action, through the
Comptrollership Department, either by
debiting or crediting the DDA of the bank
concerned, upon advice by the appropriate
department of the SES on the results of the
investigation.
X604.7 Penalty for willful delay on
the reporting of collections/remittances
In the event the Bureau of Customs shall
discover, in the course of its verification,
any willful delay in the reporting of
collections and remittances by banks, said
Bureau shall advise the Comptrollership
Department of the BSP to debit the DDA
of the bank concerned with the
corresponding penalty therefor, in
accordance with Subsec. X604.8.
X604.8 Fines for delayed reports/
remittances of collections. Any bank
authorized to collect customs duties, taxes
and other levies and export/premium duty,
which shall willfully delay the submission
of reports and remittance of its collection
to the BSP within the period prescribed
thereon, shall pay fines in accordance with
the following schedule:
a. Per day of
default for
the first 5
days of
of default
b. Per day of
default for the
Part VI - Page 12
For delay in
submission
of report
P 60 plus
For delay in
remittance
of collection
1/30 of 1%
on the
amount of
delayed
remittance
P 90 plus
1/15 of 1%
on the
next 5 days
of default
amount of
delayed
remittance
c. Per day of
default for the
succeeding
days of
default
P120 plus
1/10 of 1%
on the
amount of
delayed
remittance
Provided, That:
(1) Fines imposed above shall not be
in excess of P30,000 a day;
(2) The default shall start to run on the
day following the last day required for
submission of the report or remittance, as
the case may be. However, should the last
day of filing fall on a non-banking day in
the locality where the reporting bank is
situated, the default shall start on the day
following the next banking day; and
(3) The manner of payment or collection
of fines enumerated under Subsec. X609.1
shall apply.
X604.9 Liquidity floor requirement

on revenue collections. Revenue
collections of AABs shall be subject to the
liquidity floor requirement under Subsec.
X240.6.
X604.10 Collection of import
duties at the time of opening of letters
of credit. The following rules and
regulations shall govern the collection of
import duties at the time of opening of
letters of credit covering imports and for
other purposes:
a. Collection of deposits for import
duties. All FIs shall, upon opening of the
letters of credit covering imports, collect
from the applicant/importer a deposit
equivalent to the full amount of import
duties due on the importation covered by
such letters of credit. The deposit shall
not be withdrawable and shall be utilized
only by crediting the same to the import
duties due on the importation.
X604.10
05.12.31
b. Amount of import duties. The

import duties due shall be determined and
declared by the applicant for the letter of
credit subject to the penalties prescribed
under the Tariff and Customs Code.
c. Other payment arrangements.
The requirement of a deposit shall
likewise apply even if the importation

is effected under other types of
payment arrangements or on a
deferred payment basis. The deposit
should be made upon presentation of
the import documents to the agent
bank.
Part VI - Page 12a
X604.10 - X605.3
05.12.31
d. Validation of official receipt. Such

deposits shall be validated by official
receipts of the FIs concerned and shall be
credited in the final computation of the
import duties, taxes and other charges due
on the importation, upon the filing of the
corresponding import entry.
e. Collection of deficiency and refund
of excess deposits. Any deficiency in the
deposit made as against the actual import
duties, taxes and other charges due on the
importation shall be collected by the
Bureau of Customs from the importer prior
to the release or withdrawal of the
shipment. Any excess deposit shall be
refunded by the Bureau of Customs to the
importer.
f. Remittance of collection. The BSP
demand deposit account of the FIs
concerned shall be debited for the deposits
collected, in accordance with Subsec.
X604.5
g. Violation. Violation of the
provisions of this Section shall be penalized
under the pertinent provisions of the Tariff
and Customs Code and/or under Sections
36 and 37 of R.A. No. 7653.
During the thirty (30)-day period that

such premium contributions are in the
custody of the banks, such funds shall not
earn interest.
The banks shall not collect from the
SSS any service charge for such agency.
The funds collected by banks shall be
handled by the bank proper and not the
trust department: Provided, however, That
such deposits shall be subject to the reserve
requirements and the liquidity floor
requirements on government deposits.
Sec. X605 Miscellaneous Operations. The

following rules and regulations shall apply
to operations specified herein.
X605.3 Collection agents of

PhilHealth. Banks are authorized to act as
collecting agents of the Philippine Health
Insurance Corporation (PhilHealth) under
which agency:
a. PhilHealth members may pay their
premium contributions to PhilHealth
through the said banks and the funds thus
collected shall be remitted to PhilHealth
in accordance with PhilHealths agreed
remittance schedule which in no case shall
exceed thirty (30) days from receipt thereof;
b. During the period that such
premium contributions are in the custody
of banks, such funds shall not earn interest;
and
c. The banks shall not collect from
PhilHealth any service charge for such
agency.
X605.1 Collection and paying agents

of the Social Security System. Banks duly
accredited by the SSS are authorized to
act as collecting and paying agents under
which agency, employer-members of the
SSS may pay their premium contributions
to the SSS through the said banks and the
funds thus collected shall be remitted to
the SSS within thirty (30) days from receipt
thereof.
Such banks are also authorized to
receive amortization payments by SSS
members, individuals and entities on
commercial, industrial, housing, salary and
educational loans granted by the SSS.
X605.2 Commercial banks as

depository of rediscounting proceeds
Rediscounting proceeds for RBs situated
outside the fifty (50)-kilometer radius from
Manila shall be credited, for the account of
the RB concerned, to the clearing account
with the BSP of the depository KB to be
designated by the borrowing RB. The
contemplated depository relationship
arrangement must be manifested to the
BSP thru the submission by the RB of an
authenticated copy of the letter of
understanding between the RB and the KB
showing such depository relationship.
Part VI - Page 13
X605.3 - X606.2
06.12.31
The funds collected by the banks shall

be handled by the operating departments
(cash departments) of the banks concerned
and not their trust operations: Provided,
however, That such funds shall be subject
to the reserve requirement on deposits and
to the liquidity floor on government
deposits.
B. SUNDRY PROVISIONS
Sec. X606 Bank Premises and Other Fixed
Assets. The following rules shall govern the
premises and other fixed assets of banks.
X606.1 Appreciation or increase in
book value. Bank premises, furniture,
fixtures and equipment shall be accounted
for using the cost model under PAS 16
Property, Plant and Equipment.
Outstanding appraisal increment as of
13 October 2005 arising from mergers and
consolidation and other cases approved by
the Monetary Board, shall be deemed part
of the cost of the assets. However, appraisal
increment previously allowed to be
booked shall be reversed.
Accordingly, the booking of
appreciation or increase in the book value
of bank premises and other fixed assets in
cases where the market value of the
property has greatly increased since the
original purchase is no longer allowed.
X606.2 Ceiling on total investments

The total investment of a bank in real estate
and improvements thereon, including bank
equipment, shall not exceed fifty percent
(50%) of the banks net worth. In
determining compliance with such ceiling,
the following rules shall apply:
a. The investment shall include all
real estate and equipment necessary for the
banks immediate use in the transaction of
its business, such as:
Part VI - Page 14
(1) Bank Premises - Land and

Buildings, Buildings under Construction,
Leasehold Rights and Improvements and
Furniture, Fixtures and Equipment (as
defined in the Manual of Accounts for All
Banks), owned and used by the bank in
the conduct of its business, including staff
houses, recreational facilities and
landscaping costs, net of accumulated
depreciation: Provided, however, That
appraisal increment on bank premises
shall not be included in the total
investment in real estate and
improvements for purposes of these
guidelines; and
(2) Real properties, equipment or
other chattels purchased by the bank in
its name for the benefit of its officers and
employees, net of depreciation and in the
case of land or other non-depreciable
property, net of payments already made
to the bank by the officers and employees
for whose benefits the property was
bought, where such property has not yet
been fully paid and ownership has not yet
been transferred to them.
b. The following shall be included in
the computation of a banks total
investment in bank premises:
(1) (a) The cost of real estate leased
in whole or in part by the bank from a
corporation, other than a corporation
primarily engaged in real estate in which
the bank has equity, equivalent to the
amount obtained by applying the
percentage of the equity of the bank in
the lessor to the cost of that portion of the
property being leased, or
(b) the amount of equity in the lessor,
whichever is lower, plus the amount
obtained by applying the percentage of the
equity of the bank in the lessor to any
outstanding loans of the lessor with the
bank, the proceeds of which were used
to purchase, construct or develop the real
estate used for the banks purposes.
X606.2 - X607
06.12.31
(2) The lower of (a) the cost of real estate leased in

whole or in part by the bank from a
corporation in which any or a group of
stockholders owning ten percent (10%) or
more of the voting stock of the bank,
directors and/or officers of the bank, hold
or own more than fifteen percent (15%) of
the subscribed capital stock of the lessor,
equivalent to the amount obtained by
applying the percentage of the equity of
said stockholders/directors/officers in the
lessor to the cost of that portion of the
property being leased by the bank, or
(b) the amount obtained by applying
the percentage of the equity of the
stockholders/directors/officers in the lessor
to any outstanding loans of the corporation
with the bank, the proceeds of which were
used to purchase, construct or develop the
real estate used for the banks purposes.
The equity investment of a bank in a
corporation engaged primarily in real
estate shall be included in the computation
of the banks total investment in real estate,
unless otherwise provided by the
Monetary Board.
X606.3 Reclassification of real and
other properties acquired as bank
premises. ROPA reclassified as bank
premises shall be booked at their ROPA
balance, net of any valuation reserves:
Provided, That only such acquired asset or
a portion thereof that will be immediately
used or earmarked for future use may be
reclassified and booked as bank premises.
Banks, prior to the reclassification of
their ROPA accounts to bank premises,
shall first secure prior BSP approval before
effecting the reclassification and shall
submit, in case of future use, justification
and plans for expansion/use.
X606.4 Lease of bank premises
(Deleted by Circular No. 525 dated 04 April 2006)
X606.5 - X606.9 (Reserved)
X606.10 Batas Pambansa Blg. 344 An Act to Enhance the Mobility of

Disabled Persons by Requiring Certain
Buildings, Institutions, Establishments and
Public Utilities to Install Facilities and
Other Devices. In order to promote the
realization of the rights of disabled persons
to participate fully in the social life and the
development of the societies in which they
live and the enjoyment of the opportunities
available to other citizens, no license or
permit for the construction, repair or
renovation of public and private buildings for
public use, educational institutions, airports,
sports and recreation centers and complexes,
shopping centers or establishments, public
parking places, workplaces, public utilities,
shall be granted or issued unless the owner
or operator thereof shall install and
incorporate in such building, establishment
or public utility, such architectural facilities
or structural features as shall reasonably
enhance the mobility of disabled persons
such as sidewalks, ramps, railings and the
like. If feasible, all such existing buildings,
institutions, establishments, or public utilities
may be renovated or altered to enable the
disabled persons to have access to them.
Sec. X607 Bank Advertisements. The
govern bank advertisements.
a. No bank shall publish, issue or
distribute in any form, any advertisement
that shall degrade, deprecate or otherwise
prejudice other banking and financial
institutions.
b. No bank shall publish, issue or
distribute in any form of advertisement (in
newspapers, magazines, television, radio,
billboards, brochures, prospectuses, or any
other medium) or allow itself to be used/
mentioned in any form of advertisement
unless such advertisement is in pursuance
of its business or investment.
c. No bank shall place or cause to be
placed any advertisement tending to
mislead a depositor into believing that he
Part VI - Page 15
X607 - X608.1
05.12.31
will get more in benefits than what the bank

is legally authorized to give. No bank
advertisement shall contain any false claim
or exaggerated representation as to its
liquidity, solvency, resources, deposits and
banking services.
d. No bank advertisement shall give
the impression that the bank is engaged in
a business other than banking.
e. Banks shall inform their depositors
and other clients by advertisement or
publication of the termination of benefits
previously advertised or publicized.
f. Banks shall discontinue any
advertisement whenever the same is
deemed unethical/unwarranted or violative
of the provisions of these regulations. The
client banks and/or their advertising agencies
shall incorporate in their contract/agreement
for time and space with media the condition
that such contract/agreement for time and
space can be cancelled/terminated
immediately whenever the client bank is
directed by the BSP to desist or discontinue
the particular advertisement in question.
g. Responsibility for compliance with
the above rules and regulations rests with
the bank officers or directors who caused
the approval or placement of such
advertisement.
Sec. X608 Assessment Fees on Banks
Banks shall contribute to the BSP an annual
fee to help defray the cost of maintaining
the appropriate department of the SES in
accordance with the following guidelines.
X608.1 Annual fees on banks. For
purposes of computing the annual fees
chargeable against banks, the term Total
Assessable Assets shall be the amount
referred to as the total assets under Section
28 of R.A. No. 7653 (end-of-month total
assets per balance sheet, after deducting
cash on hand and amounts due from banks,
including the BSP and banks abroad), plus
trust department accounts.
Part VI - Page 16
Average Assessable Assets (AAAs)

shall be the summation of the end-ofmonth total assessable assets divided by
the number of months in operation during
the particular assessment period.
The rates of annual fees for banks for
the assessable years 2000, 2001 and 2002
shall be as follows:
a. UBs/KBs
- 1/28 of 1%
b. TBs
- 1/28 of 1%
c. RBs/Coop banks - 1/40 of 1%
multiplied by their AAAs for 2000, 2001
and 2002: Provided, That the annual fees
chargeable to RBs/Coop Banks shall be
the lower of the amount computed based
on the above rate or the cost of
maintaining the appropriate department
of the SES: Provided, further, That
beginning the fiscal year 1999, the annual
banking fees of RBs/Coop Banks shall be
computed based on average total assets
based on the banks balance sheets as of
month-end for the months of March, June,
September and December and dividing
by four (4) the sum of the end-of-month
balances. RBs and Coop Banks shall
compute and pay the supervisory fees on
or before 30 January of each year starting
2003 and every year thereafter. The
amount of the fee as computed by the
banks shall be subject to BSP review and
verification, and appropriate adjustment,
as the case may be. Non-payment of the
supervisory fee within the prescribed
period shall subject the concerned bank
to the sanctions prescribed under Sections
34, 35, 36 and 37 of R.A. No. 7653.
Annual fees to be collected from
banks shall be debited from their
respective deposits with the BSP by the
BSP Comptrollership Department upon
receipt of the notice of the assessment
from the appropriate department of the
SES.
Where the deposit account is
insufficient to cover the assessment fee,
the BSP
X608.1 - X609.1
07.12.31
Comptrollership Department shall

bill the bank for the full amount of the
annual fee or for the balance thereof not
covered by its deposit account, as the
case may be.
Within thirty (30) calendar days from
receipt of the bill, the bank shall make the
corresponding remittance to the BSP
Accounting Department. Failure to pay the
bill within the prescribed period shall
subject the institution to administrative
sanctions.
Sec. X609 Collection of Fines and Other
Charges from Banks. The following
regulations shall govern the payment of
fines and other charges by banks.
X609.1 Guidelines on the imposition
of monetary penalties. The following are
the guidelines on the imposition of monetary
penalties on banks, their directors and/or
officers.
a. Definition of terms. For purposes
of the imposition of monetary penalties,
the following definitions are adopted:
(1) Continuing offenses/violations are
acts, omissions or transactions entered into,
in violation of laws, BSP rules and
regulations, Monetary Board directives,
and orders of the Governor which persist
from the time the particular acts were
committed or omitted or the transactions
were entered into until the same were
corrected/rectified by subsequent acts or
transactions. They shall be penalized on a
per calendar day basis from the time the
acts were committed/omitted or the
transactions were effected up to the time
they were corrected/rectified.
(2) Transactional offenses/violations
are acts, omissions or transactions entered
into in violation of laws, BSP rules and
regulations, Monetary Board directives,
and orders of the Governor which cannot
be corrected/rectified by subsequent acts
or transactions. They shall be meted with
one-time monetary penalty on a per

transaction basis.
(3) Continuing penalty refers to the
monetary penalty imposed on continuing
offenses/violations on a per calendar day
basis reckoned from the time the offense/
violation occurred or was committed until
the same was corrected/rectified.
(4) Transactional penalty refers to a
one-time penalty imposed on a
transactional offense/violation.
b. Basis for the computation of the
period or duration of penalty. The
computation of the period or duration of
all penalties shall be based on calendar
days. For this purpose the terms per
banking day, per business day, per
day and/or a day as used in this Manual,
and other BSP rules and regulations shall
mean per calendar day and/or calendar
day as the case may be.
c. Additional charge for late payment
of monetary penalty. Late payment of
monetary penalty shall be subject to an
additional charge of six percent (6%) per
annum to be computed from the time said
penalty becomes due and payable up to the
time of actual payment. The penalty shall
become due and payable fifteen (15)
calendar days from receipt of the Statement
of Account from the BSP. For banks which
maintain DDA with the BSP, penalties
which remain unpaid after the lapse of the
fifteen-day period shall be automatically
debited against their corresponding DDA on
the following banking day without additional
charge. If the balance of the concerned
banks DDA is insufficient to cover the
amount of the penalty, said penalty shall
already be subject to an additional charge of
six percent (6%) per annum to be reckoned
from the banking day immediately following
the end of said fifteen (15)-day period up to
the day of actual payment.
d. Appeal
or
request
for
reconsideration. A one (1)-time appeal or
request for reconsideration on the
Part VI - Page 17
X609.1 - X609.4
07.12.31
monetary penalty approved by the

Governor/Monetary Board to be
imposed on the bank, its directors and/
or officers shall be allowed: Provided,
That the same is filed with the
fifteen (15) calendar days from receipt
of the Statement of Account/billing
letter. The appropriate department of the
SES shall evaluate the appeal or request
for reconsideration of the bank/
individual and make recommendations
thereon within thirty (30) calendar days
from receipt thereof. The appeal or
request for reconsideration on the
monetary penalty approved by the
Governor/Monetary Board shall be
elevated to the Monetary Board for
resolution/decision. The running of the
penalty period in case of continuing
penalty and/or the period for computing
additional charge shall be interrupted
from the time the appeal or request for
reconsideration was received by the
appropriate department of the SES up to
the time that the notice of the Monetary
Board decision was received by the
bank/individual concerned.
X609.2 Payment of fines by banks

Banks shall pay the fines within fifteen
(15) calendar days from receipt of the
statement of account from the BSP.
For banks which maintain demand
deposit account with the BSP, fines which
are unpaid after the lapse of the fifteen
(15)-day period shall be automatically
debited against the corresponding demand
deposit account of the bank concerned:
Provided, That if the balance of the banks
account is insufficient to cover the fines
due, such fines shall be paid not later than
the following banking day. For the purpose
of this Subsection, banking day means a
day on which the BSP head office and the
Part VI - Page 18
head office of the bank are open for

business.
For uniform implementation of the
above regulations, the procedural
guidelines embodied in Appendix 29 shall
be observed.
X609.3 Cost of checks and

documentary stamps. Banks are given
fifteen (15) days from receipt of invoice
to settle their accounts with the BSP
Security Printing Plant for transactions
representing the cost of printed checks
and documentary stamps. Accounts not
settled within fifteen (15) days will be
debited against the banks corresponding
demand deposit account with the BSP. A
debit advice showing invoices paid shall
be sent to the head office of the bank
concerned.
X609.4 Check/demand draft

payments to the Bangko Sentral of thrift,
cooperative and rural banks. TBs, Coop
Banks and RBs are required to make all
check and demand draft payments for
CB:IBRD, LC/STD, legal reserve,
supervisory fees, fines or penalties,
redemption of preferred shares and cash
dividends for government held preferred
shares, and collections or repayments of
notes used as collateral for loans payable
either to the Cash Department, Bangko
Sentral ng Pilipinas, Mabini St., Malate,
Manila or directly to BSP Regional Cash
Units. Such payments shall be accompanied
by appropriate payment form as shown in
Appendix 35. Payments not accompanied
by the required payment forms shall be
presumed to be additions to reserves and
shall be credited to the demand deposit
account of the paying bank.
Check payments shall be value dated
when the check is cleared.
X609.4 - X610.2
07.12.31
However, all assessments for annual

supervisory fees, fines and penalties of TBs
shall be debited from the respective
demand deposit accounts with BSP.
Sec. X610 Philippine and Foreign

Currency Notes and Coins. The following
rules and regulations shall govern the
treatment and disposition of counterfeit
Philippine and foreign currency notes and
coins, the reproduction and/or use of
facsimiles of legal tender Philippine
currency notes and coins, the replacement
and redemption of legal tender Philippine
currency notes and coins considered
mutilated or unfit for circulation, and the
treatment and disposition of Philippine
currency notes and coins called in for
replacement.
terms are defined.
a. Legal Tender Philippine Currency
- Notes and coins issued and circulating
under the provisions of R.A No. 265 and/
or R.A. No. 7653, which when offered for
the payment of public or private debt must
be accepted.
b. Counterfeit Note - An imitation of
a legal and genuine note intended to
deceive or to be taken for that which is
original, legal and genuine.
c. Counterfeit Coin - An imitation or
forged design of a genuine legal and
authorized coin intended to deceive or pass
for the genuine coin, regardless of its
intrinsic value.
d. Unauthorized Reproduction of
Legal Tender Philippine Note - A
reproduction of a facsimile or any
illustration or object bearing the likeness
or similitude of legal tender Philippine
currency note or any part thereof, without
prior authority from the Governor of BSP
or his duly authorized representative.
e. Unauthorized Reproduction of
Legal Tender Philippine Coin - A
reproduction of a facsimile or any object
in metal form bearing the likeness or
similitude of legal tender Philippine
currency coin or any part thereof, without
prior authority from the Governor of BSP
or his duly authorized representative.
X610.2 Treatment and disposition
of counterfeit Philippine and foreign
currency notes and coins. Any person or
entity, public or private, who receives or
takes hold of a note or coin which is
counterfeit or whose genuineness is
questionable, whether Philippine or foreign
currency, shall issue a temporary receipt
to its owner/holder and must indicate
therein his name, address and community
tax certificate number or the passport
number, in case of a foreigner, the date of
receipt, the denomination, serial number
of the note or the coin series as the case
may be. The owner/holder shall be required
to countersign the receipt and in case of
refusal, the reasons thereof shall be stated
in the receipt.
Any person or entity, public or private,
who receives, takes hold or has in his
possession a note or a coin which is
counterfeit or whose genuineness is
questionable, whether Philippine or foreign
currency, shall forward the same within
five (5) working days from date of receipt/
possession thereof, together with a copy
of the temporary receipt required herein
for examination to:
The Cash Department
Bangko Sentral ng Pilipinas
A. Mabini St., Manila
In cases where personal delivery to the
Cash Department, BSP, Manila, is not
feasible, delivery of the afore-stated notes
or coins may be made through any of the
following agencies:
Part VI - Page 18a
X610.2
05.12.31
(1) The BSP Regional Offices/ Units; or

(2) Any banking institution.
Any law enforcement agency which
conducted any seizure of notes and coins,
whether Philippine or foreign, which are
counterfeits or suspected to be counterfeit
currency, shall within five (5) working days
from date of seizure, advise in writing the
Cash Department, BSP, Manila of said
seizure enclosing therewith a copy of the
receipt and inventory taken on the seized
items. All seized notes or coins which are

not or no longer needed as evidence in
any investigation/legal proceedings shall
be immediately turned over to the Cash
Department, BSP, for proper disposition.
The Cash Department, BSP, after
examining all notes and coins submitted
to it for examination and/or determination
as to its genuineness, shall:
(a) Issue a corresponding certification
for the currency examined, if needed;
(Next Page is Part VI-Page 19)
Part VI - Page 18b
X610.2 - X610.5
05.12.31
(b) Stamp the word COUNTERFEIT

on both the face and the back of each note
found to be counterfeit; and
(c) Return to the owner/holder, and/or
sender the Philippine or foreign currency
notes or coins found to be genuine in
accordance with existing accounting and
auditing regulations.
All notes and coins, whether Philippine
or foreign, determined by the BSP to be
counterfeit currency, shall not be returned
to the owner/holder, but shall be retained
and later disposed of in accordance with
such guidelines as may be adopted by the
BSP, except those which will be used as
evidence in an investigation or legal
proceedings, in which case, the same shall
be retained and preserved by the BSP for
evidentiary purposes.
The BSP shall extend assistance as may
be requested of it in the investigation,
apprehension and/or prosecution of
person/s responsible for counterfeiting of
notes and coins, both Philippine or foreign.
X610.3 Reproduction and/or use of
currency notes. No person or entity, public
or private, shall design, engrave, print,
make or execute in any other manner, or
utter, issue, distribute, circulate or use any
handbill, advertisement, placard, circular,
card, or any other object whatsoever
bearing the facsimile, likeness or similitude
of any legal tender Philippine currency
note, or any part thereof, whether in black
and white or any color or combination of
colors, without prior authority therefor
having been secured from the Governor,
BSP or his duly authorized representative.
The reproduction and/or use of
facsimiles or any illustration bearing the
likeness or similitude of legal tender
Philippine currency notes may be
authorized by the Governor, BSP or his duly
authorized representative, for printed
illustrations in articles, books, journals,
newspapers, or other similar materials and

strictly for numismatic, educational,
historical, newsworthy or other purposes
which will maintain, promote or enhance
the integrity and dignity of said note:
Provided, however, That any such facsimile
or illustration shall be of a size less than
three-fifths (3/5) or more than one and onehalf (1-1/2) times in size of the currency note
being illustrated and that there will be no
deviation from the purpose for which the
notes will be used.
X610.4 Reproduction and/or use of
currency coins. No person or entity, public
or private, shall design, engrave, make or
execute in any other manner, or use, issue,
or distribute any object whatsoever bearing
the likeness or similitude as to design, color
or the inscription thereon of any legal tender
Philippine currency coin or any part thereof,
in metal form, irrespective of size and
metallic composition, without prior authority
from the Governor, BSP or his duly
authorized representative.
The reproduction and/or use of
facsimiles or of any object bearing the
likeness or similitude of legal tender
Philippine currency coins referred to in the
foregoing section may be authorized by the
Governor, BSP or his duly authorized
representative, strictly for numismatic,
educational, historical and other purposes
which will maintain, promote or enhance
the integrity and dignity of said coins.
X610.5 Clean note policy. When
making cash deposits with the Cash
Department or any of the Regional Offices/
Units of the BSP, banks and their branches
shall observe the following guidelines and
procedures.
a. Banks shall classify their cash
deposits into: (1) clean or fit notes and (2)
dirty or unfit notes, in accordance with the
Currency Guide for Bank Tellers, Money
Part VI - Page 19
X610.5 - X610.6
05.12.31
Counters and Cash Custodians prepared by

Cash Department, BSP. The notes thus
classified shall be further sorted by series
and by denomination.
b. Banks shall provide securely
sealed bags or containers separately for
the clean or fit notes and for the dirty or
unfit notes accompanied by a deposit slip
for each type/category. The deposit slip
for unfit currency notes shall be clearly
labelled as unfit.
c. To facilitate handling of deposits,
bank deposits shall be packed in sealed bags
or containers in standard quantity of twenty
(20) full bundle per denomination (each
bundle containing 1,000 notes in ten (10)
equal straps, each strap containing 100
notes).
d. Provincial branches of banks may
make direct deposits of currency notes duly
identified and sorted, with the nearest BSP
Regional Office/Unit. In areas where there
are no BSP Regional Office/Unit, provincial
branches of banks shall arrange with their
respective head offices the shipment of their
unfit or dirty notes for deposit with the BSP
Cash Department in Manila. Cost of
shipment and other related expenses to be
incurred shall be solely for the account of
the bank concerned.
Cash Department and the regional offices/
units of BSP may refuse acceptance of cash
deposits that do not conform with these
guidelines and procedures.
X610.6
Replacement and
redemption of mutilated or unfit legal
tender Philippine currency notes and
coins. The replacement and redemption
of legal tender Philippine currency notes
and coins considered mutilated or unfit
for circulation shall be governed by the
following rules.
a. Unfit currency note. A currency
note shall be considered unfit for circulation
when:
Part VI - Page 20
(1) It contains heavy creases which

break the fiber of the paper and indicate that
disintegration has begun: Provided,
however, that mere creasing or wrinkling
which has not broken nor weakened the
note does not render the note unfit for
circulation; or
(2) It is badly soiled/contaminated and/
or with writings even if it has proper life or
sizing; or
(3) It presents a limp or raglike
appearance.
b. Mutilated currency note.
A
currency note shall be considered mutilated
when:
(1) Torn parts of banknote are joined
together with adhesive tape in a manner
which tries to preserve as nearly as possible
the original design and size of the note; or
(2) The original size of the note has been
reduced/lost through wear and tear or has
been otherwise torn, damaged, defaced or
perforated through action of insects,
chemicals or other causes; or
(3) It is scorched or burned to such an
extent that although recognizable as such,
it has become frail and brittle as to render
further handling thereof impossible without
disintegration or breaking; or
(4) It is split edgewise; or
(5) It has lost all the signatures inscribed
thereon.
c. Unfit currency coin. A currency
coin shall be considered unfit for
circulation when:
(1) It is bent or twisted out of shape or
defaced, but its genuineness and/or
denomination can still be readily and clearly
determined/identified; or
(2) It has been considerably reduced in
weight by natural abrasion/wear and tear.
d. Mutilated currency coin. A currency
coin shall be considered mutilated when:
(1) It shows signs of filing, clipping or
perforation; or
(2) It shows signs of having been
burned or has been so defaced, that its
X610.6 - X621.1
05.12.31
genuineness and/or denomination cannot

be readily and clearly identified.
e. Currency notes and coins
considered unfit for circulation shall not be
re-circulated, but may be presented for
exchange to or deposited with any bank.
f. Currency notes and coins
considered mutilated shall not be recirculated nor deposited/exchanged, but
may be presented or forwarded for
determination of their redemption exchange
value to:
(1) The Cash Department
A. Mabini St., Manila; or
(2) The nearest BSP Regional Office/
Unit.
g. The BSP shall replace or redeem
notes and coins considered unfit for
circulation or mutilated except when such
notes and coins fall under any of the
following classifications:
(1) Notes and coins the identification
of which is impossible;
(2) Coins which show signs of filing,
clipping or perforations; or
(3) Notes which have lost more than
two-fifths (2/5) of their surface or all of
the signatures inscribed thereon.
Notes and coins falling under any of the
classifications mentioned under Item "g"
above shall be withdrawn from circulation
and demonetized without compensation to
the owner/bearer.
X610.7 Treatment of Philippine
currency notes and coins called in for
replacement. Any person or entity, public
or private, who receives, takes, holds or has
in his possession Philippine currency notes
and coins called in for replacement shall
forward the same during the redemption
period to:
a. Any authorized agent banks of the
BSP when the notes are still considered
legal tender, within one (1) year from the
date of call; or
b. The BSP Cash Department or BSP

Regional Offices/Cash Units, within the
redemption period as may be determined
The BSP Cash Department or the BSP
Regional Cash Units shall exchange the
notes/coins called in for replacement if
presented to the BSP within the redemption
period as determined by the Monetary
Board and subsequently dispose the same
in accordance with BSP procedures for
disposal.
the provisions of Subsecs. X610.3 and
X610.4, shall subject the offender to
imprisonment of not less than five (5) years,
but not more than ten (10) years. In case
the Revised Penal Code provides for a
greater penalty, then that penalty shall be
imposed.
Sec. X621 Electronic Banking Services. The
following are the guidelines concerning
electronic banking activities.
X621.1 Application. Banks wishing
to provide and/or enhance existing
electronic banking services shall submit to
the BSP an application describing the
services to be offered/enhanced and how it
fits the banks overall strategy. This shall
be accompanied by a certification signed
by its president or any officer of equivalent
rank and function to the effect that the bank
has complied with the following minimum
pre-conditions:
a. An adequate risk management
process is in place to assess, control,
monitor and respond to potential risks
arising from the proposed electronic
banking activities;
b. A manual on corporate security
policy and procedures exists that shall
address all security issues affecting its
Part VI - Page 21
X621.1 - X621.4
05.12.31
electronic banking system, particularly the

following:
(1) Authentication establishes the
identity of both the sender and the receiver;
uses trusted third parties that verify identities
in cyberspace;
(2) Non-repudiation ensures that
transactions can not be repudiated or presents
undeniable proof of participation by both the
sender and the receiver in a transaction;
(3) Authorization establishes and
enforces the access rights of entities (both
persons and/or devices) to specified
computing resources and application
functions; also locks out unauthorized
entities from physical and logical access to
the secured systems;
(4) Integrity assures that data have not
been altered; and
(5) Confidentiality assures that no one
except the sender and the receiver of the
data can actually understand the data.
c. The system had been tested prior to
its implementation and that the test results
are satisfactory. As a minimum standard,
appropriate systems testing and user
acceptance testing should have been
conducted; and
d. A business continuity planning
process and manuals have been adopted
which should include a section on
electronic banking channels and systems.
X621.2 Pre-screening of applicants
a. The BSP, thru the Technical
Working Group on Electronic Banking, shall
pre-screen the overall financial condition as
well as the applicant-banks compliance
with BSP rules and regulations based on the
latest available Bank Performance Rating
(BPR) and Report of Examination (ROE)
including CAMELS Rating.
The Working Group shall ensure that
the applicant banks overall financial
condition can adequately support its
electronic banking activities and that it shall
have complied with certain comprehensive
Part VI - Page 22
prudential requirements such as, but not

limited to, the following:
(1) Minimum capital requirement and
net worth to risk assets ratio;
(2) Satisfactory solvency, liquidity and
profitability positions;
(3) CAMELS composite rating of at least
3, (this number, however can be flexible
depending on other circumstances
prevailing), and with at least a moderate risk
assessment system (RAS) based on the latest
regular examination.
(4) There are no uncorrected major
findings/exceptions noted in the latest BSP
examination.
X621.3 Approval in principle
a. Based on the recommendation of
the Technical Working Group on Electronic
Banking, the Deputy Governor, SES, shall
approve in principle the application so that
banks may immediately launch and/or
enhance their existing electronic banking
services.
b. Banks shall be informed of the
conditional approval of the DG, SES and
they shall in turn notify the BSP on the actual
date of its launching/enhancement.
X621.4 Documentary requirements
a. Within thirty (30) calendar days
from such launching/enhancement, banks
shall submit to the BSP thru the SRSO for
evaluation, the following documentary
requirements:
(1) A discussion on the banking services
to be offered/enhanced, the business
objectives for such services and the
corresponding procedures, both automated
and manual, offered through the electronic
banking channels;
(2) A description or diagram of the
configuration of the banks electronic
banking system and its capabilities showing
(i) how the electronic banking system is
linked to other host systems or the network
infrastructure in the bank; (ii) how
X621.4 - X621.5
05.12.31
transaction and data flow through the network;

(iii) what types of telecommunications channels
and remote access capabilities (e.g., direct
modem dial-in, internet access, or both)
exist; and (iv) what security controls/
measures are installed;
(3) A list of software and hardware
components indicating the purpose of the
software and hardware in the electronic
banking infrastructure;
(4) A description of the security policies
and procedures manual containing
(i) description of the banks security
organization, (ii) definition of responsibilities
for designing, implementing, and monitoring
information security measures; and
(iii) established procedures for evaluating
policy compliance, enforcing disciplinary
measures and reporting security violations;
(5) A brief description of the
contingency and disaster recovery plans
for electronic banking facilities and event
scenario/problem management plan/
program to resolve or address problems,
such as complaints, errors and intrusions
and the availability of back-up facilities;
(6) Copy of contract with the
communications carrier, arrangements for
any liability arising from breaches in the
security of the system or from
unauthorized/fraudulent transactions;
(7) Copy of the maintenance
agreements with the software/hardware
provider/s; and
(8) Latest report on the periodic review
of the system, if applicable.
b. If after the evaluation of the
submitted documents, the Working Group
has still some unresolved issues and grey
areas, the bank may be required to make
a presentation of its electronic banking
transactions to BSP.
X621.5 Conditions for Monetary
Board approval. Upon completion of
evaluation, the appropriate recommendation
shall be made to the Monetary Board. The
following shall be the standard conditions

for approval:
a. Existence at all times of appropriate
top-level risk management oversight;
b. Operation of electronic banking
system outsourced to a third party service
provider taking into consideration the
existence of adequate security controls and
the observance of confidentiality [as
required in R.A. No. 1405 (Bank Secrecy
Law)] of customer information;
c. Adoption of measures to properly
educate customers on safeguarding of user
ID, PIN and/or password, use of banks
products/services, actual fees/bank charges
thereon and problem/error resolution
procedures;
d. Clear communication with its
customers in connection with the terms and
condition which would highlight how any
losses from security breaches, systems
failure or human error will be settled
between the bank and its customers;
e. Customers acknowledgement in
writing that they have understood the
terms and conditions and the corresponding
risks that entail in availing electronic
banking service;
f. The banks oversight process shall
ensure that business expansion shall not put
undue strains on its systems and risk
management capability;
g. The establishment of procedures for
the regular review of the banks security
arrangements to ensure that such
arrangements remain appropriate having
regard to the continuing developments in
security technology;
h. Strict adherence to BSP regulations on
fund transfers in cases where clients use the
electronic banking services to transfer funds;
i. The electronic banking service
shall not be used for money laundering or
other illegal activities that will undermine
the confidence of the public; and
j. The BSP shall be notified in writing
thirty (30) days in advance of any
Part VI - Page 23
X621.5 - X631
08.12.31
enhancements that may be made to the

online electronic banking service.
X621.6 Pending applications. The
same procedure and requirements stated
in the foregoing shall apply to all banks
with pending applications with the BSP,
except on the submission of the
documents enumerated in Item e,
Subsec. X621.1, i.e., banks which have
already submitted all the required
information/documents need not comply
with this requirement.
X621.7 Exemption. Electronic
banking services that are purely
informational in nature are exempted from
these regulations: Provided, however, That
should such services be upgraded to
transactional service, then prior BSP
approval shall be required.
X621.8 Transitory provision. Banks
with existing electronic banking services
but do not qualify as a result of the
pre-screening process mentioned in Item
b, Subsec. X621.1, shall be given three
(3) months from 21 December 2000, within
which to show proof of improved overall
financial condition and/or substantial
compliance with BSPs prudential
requirements, otherwise, their electronic
banking activities will be temporarily
suspended until such time that the same
have been complied with.
X621.9 - X621.11 (Reserved)
X621.12 Sanctions. For failure to
seek BSP approval before launching/
enhancing/implementing electronic
banking services, and/or submit within
the prescribed deadline the required
information/documents, the following
monetary penalties and/or suspension
Part VI - Page 24
of electronic banking activities or both,

shall be imposed on erring banks
and/or its officers:
a.
b.
Monetary penalties
Amount
For responsible officer/s

and/or director/s - for failure
to seek prior BSP approval
and/or for non-submission/
delayed submission of
required information/
documents
On the bank - for failure to
seek prior BSP approval
and/or for non-submission/
delayed submission of
required information/
documents
a one time
penalty of
P200,000
P30,000 per day

starting from the
day the offense
was committed
up to the time
the same was
corrected
X621.13 Outsourcing. Outsourcing

of internet and mobile banking services
shall be governed by the provisions of
Subsec. X169.2.

Sec. X624 Consumer Protection for
Electronic Banking. The rules and
regulations concerning consumer protection
for electronic banking (e-banking) products
and services are in Appendix 70.
The
guidelines
govern
the
implementation of e-banking activities of
a bank for purposes of compliance with
the requirements to safeguard customer
information; prevention of money
laundering and terrorist financing;
reduction of fraud and theft of sensitive
customer information; and promotion of
legal enforceability of banks electronic
agreements and transactions.
(As amended by CL-2007-048 dated 09 September 2007 and
Circular No. 542 dated 01 September 2006)
1631
05.12.31
Sec. 1631 Financial Products of Allied

Undertakings or Investment House Units
of Banks. The following guidelines shall
govern the use of the head office and/or
any or all branches of UBs and KBs as outlets
for the presentation and sale of financial
products of their allied undertakings
(subsidiaries and affiliates as defined hereafter)
or of their IH units. In case of sale of insurance
products of insurance company affiliates, said
affiliates must be accredited or pre-cleared by
the Insurance Commission (IC) to ensure that
only stable and reputable insurance companies
can sell their products through banks.
a. Financial products covered by this

Section are the following:
(1) Credit cards;
(2) Insurance products limited to:
(a) Life insurance products;
(i) Term insurance (including mortgage
redemption insurance);
(ii) Whole life insurance;
(iii) Endowment;
(iv) Health and accident policies;
(v) Variable life insurance contracts;
and
(vi) Life annuities.
(b) Non-life insurance;
Part VI - Page 24a
1631 - 1631.3
05.12.31
(i) Fire insurance;

(ii) Marine cargo policies;
(iii) Homeowners policies;
(iv) Directors/officers liability insurance;
and
(v) Motor vehicle insurance;
(3) Such other products as may be
authorized by the Monetary Board.
b. For purposes of this Section, a
subsidiary means a corporation more
than fifty percent (50%) of the voting stock
of which is directly or indirectly owned,
controlled or held with power to vote by a
bank while an affiliate means a corporation
at least five percent (5%) but not exceeding
fifty percent (50%) of the voting stock of
controlled or held with the power to vote
by a bank. A domestic subsidiary or affiliate
is any subsidiary or affiliate domiciled in the
Philippines and incorporated under the laws
of the Philippines, while a foreign subsidiary
or affiliate is a subsidiary or affiliate
incorporated and organized under the laws
of the foreign country.
1631.1 Statement of principles. The
use of a banks head office and/or any or all
of its branches in the presentation and sale
of financial products of allied undertakings
or IH units could give the banking public
the impression that these products are
covered by the deposit insurance system or
guaranteed by the parent bank. To enable
the public to understand fully the attendant
risks involved in these transactions, a clear
and explicit distinction between financial
products offered by a bank and those of its
allied undertakings or IH units must be made
in the presentation and sale of these
products, whether through written or verbal
communications.
1631.2 Prior Monetary Board
approval. The presentation and sale of
financial products shall be made by the bank
in its head office and/or any or all of its
branches only upon prior approval of the

Monetary Board.
The banks proposal on said
presentation and sale shall provide
information on the location of the office
where financial products will be sold.
Where possible, the office shall not be
located in the main lobby of the banks head
office and/or its branches and should be
clearly distinguishable by the public as a
separate entity from the parent bank. The
proposal shall likewise cover particulars on:
a) personnel who will be involved in the
marketing of the financial products; and b)
promotional matters including safeguards
that would ensure that the public will be
able to differentiate readily the bank products
from the non-bank products. The public
should also be able to distinguish personnel
marketing non-bank products from regular
bank personnel. In case of sale of insurance
products, the staff selling insurance policies
must be duly licensed by the IC.
1631.3 Minimum documentary
requirements. The following documents
shall be submitted as basis for the evaluation
of a bank intending to sell financial products
of its allied undertakings or its IH units:
a. Latest information on the allied
undertaking or IH unit:
(1) Annual report;
(2) List of directors and senior officers;
and
(3) Income and expense statement for
the last three (3) years;
b. Copy of the approval of the Board
of Directors of both the parent bank and
allied undertakings or IH units on the
presentation and sale of financial products;
c. Justification of the presentation and
sale of financial products;
d. Detailed information on the financial
products to be offered, including promotional
materials which will be used;
e. Outline of the content of the training
materials for banks staff and officers who
Part VI - Page 25
1631.3 - 1631.5
05.12.31
will be involved in the handling of the sale

of financial products;
f. Sample contracts; and
g. Such other information that may be
1631.4 Financial ratios and other
related requirements. A bank intending to
use its head office and any/or all its branches
as outlets for the presentation and sale of
financial products of its allied undertakings
or IH units must comply with the following
requirements to ensure that only financially
viable institutions complying with BSP rules
and regulations are allowed to undertake
cross-selling activities:
a. The bank during the last ninety (90)
days immediately preceding the date of
application has complied with the
following:
(1) Ceilings on credit accommodations
to DOSRI;
(2) Liquidity floor on government
deposits;
(3) Minimum capitalization as defined
under Sec. X106;
(4) Risk-based capital adequacy ratio
under Sec. X116 or as may be required by
the Monetary Board in the future;
(5) Single borrowers limit;
(6) Investment in bank premises and
other fixed assets;
(7) Open foreign exchange position; and
(8) Foreign exchange asset cover on
FCDU/EFCDU foreign currency liabilities.
b. It does not have float items
calendar days in the Due from/to Head
Due from Bangko Sentral account
resources as of end of preceding month;
c. It has no weekly reserve deficiency
against deposit liabilities, deposit substitutes
and CTFs during the last twelve (12) weeks
application;
Part VI - Page 26
d. It maintains adequate provisions for

of its asset portfolio but not lower than the
by the BSP; and
e. It has a CAMELS Composite Rating
by the BSP.
1631.5 Promotional materials;
stationeries and other paraphernalia
a. The promotional materials used in
the sale of these financial products,
especially posters displayed in bank
premises, shall contain the following:
(1) The logo of the allied undertaking
or IH unit promoting the financial product
accompanied by the words A subsidiary
(or affiliate, as the case may be) of (name of
parent bank)"; and
(2) The words financial product/s of
(name of allied undertaking/investment
house unit) is/are not insured by the
and is/are not guaranteed by the (name of
parent bank) shall be printed in capital
letters, black letters against light background/
white letters against dark background with
the following print size:
Size of Promotional
Material
Legal/letter size
15"X20"
19"X25"
Print Size*
12
24
36
*For other measurements of promotional

materials, use of print size closest to indicated size of
promotional material.
b. Stationeries and other paraphernalia

used in the sale of aforementioned
products shall bear the logo of the allied
undertaking or IH unit promoting the
financial product and the words a
subsidiary (or affiliate, as the case may be)
of (name of parent bank) should appear
visibly under the logo.
1631.6 - 1633
05.12.31
1631.6 Contracts/Information to be
disclosed
a. The following paragraph shall be
printed at the end of the contract in the print
size as the rest of the contract, or font size
12 whichever is bigger, in capital letters and
in bold font:
This contract is between (name of client)
and (name of allied undertaking or investment
house unit), a subsidiary (or affiliate, as the
case may be) of (name of parent bank). All
transactions arising out of or related to this
contract shall be binding only between these
two (2) contracting parties. It is understood
that this transaction is neither insured by the
(PDIC) nor guaranteed by the parent bank.
b. All other limitations that may affect
the interest of the client shall also be
disclosed in the contract.
1631.7 Training. The bank shall
conduct training for the officers and staff
who will be involved in the handling of the
sale of non-bank products to ensure that they
do not unwittingly guarantee or give the
impression that the financial products being
offered are those of the parent bank.
1631.8 Other requirements
a. Record-keeping and accounting for
the financial products of the banks allied
undertaking or IH unit shall be separate from
those of the parent bank.
b. The bank, in coordination with its
allied undertaking/IH unit, shall formulate
the guidelines and establish clear procedures
for evaluating client suitability.
1631.9 - 1631.10 (Reserved)
1631.11 Sanctions
a. Violations of the provisions of this
Section shall constitute grounds for the
imposition on the bank of the following:
(1) Monetary fine Any amount as may
be authorized by the Monetary Board not to
exceed P30,000 a day for each violation

from the time the violation was committed
until it is corrected;
(2) Non-monetary penalties
(a) Suspension of rediscounting privileges or access to BSP credit facilities; and
(b) Other sanctions as the Monetary
Board may impose depending on the gravity
of the offense.
Sec. X632 Prohibition on the Sale of
Foreign-Based Mutual Funds by Banks
Criminal and administrative sanctions
prescribed under Sections 36 and 37,
respectively, of R.A. No. 7653 (The New
Central Bank Act) shall be imposed on banks
marketing/selling foreign-based mutual funds
using any or all of their branches as outlets
and/or selling such financial products
without prior BSP approval.
Sec. 1633 Credit-linked Notes and Similar
Credit Derivative Products. The following
are the guidelines for the capital treatment
of investments in credit-linked notes and
similar credit derivative products such as
credit-linked deposits and credit-linked loans.
a. Definitions
(1) A credit-linked note (CLN) pertains
to a pre-funded credit derivative instrument
under which the note holder effectively
accepts the transfer of credit risk pertaining
to a reference asset or basket of assets issued
by a reference entity/ies. The repayment of
the principal to the note holder is contingent
upon the occurrence of a defined credit event.
In consideration, the note holder receives
an economic return reflecting the underlying
credit risk of the reference asset/s.
All references to CLNs in this Section
shall be taken to generically include similar
Part VI - Page 27
1633
05.12.31
instruments, such as Credit-Linked Deposits

(CLDs) and Credit-Linked Loans (CLLs).
(2) An SPV, for purposes of this
Section, refers to an entity specifically
established to issue CLNs of a single,
homogeneous risk class that are fully
collateralized as to principal by high-grade
securities purchased out of the proceeds of
the note issuance. Collateral shall be limited
to securities with an assignable risk weight
of not more than twenty percent (20%)
under existing regulations.
b. Qualified banks
In general, only banks with expanded
derivatives authority may invest in CLNs
as defined above on the principle that such
banks have already demonstrated a more
sophisticated ability to manage risks.
Subject to the provisions in Sec. 1648, they
may also invest in SPV-issued CLNs that
co-exist with other CLNs of different
seniority of claims against the reference
asset pool. As an exception to the general
rule, a UB/KB without expanded derivatives
authority may invest in single name CLNs
where the reference asset is a direct ROP
obligation or an obligation fully guaranteed
by the ROP.
c. Capital treatment of investments in
CLNs
(1) Banking book. Positions in CLNs in
the banking book shall be reported in the
computation of the risk-based capital
adequacy ratio covering credit risks under
Sec. X116.
Through holding a CLN, a bank
acquires credit exposure on two (2) fronts to the reference entity of the note and also
to the note issuer. The on-balance sheet
exposure arising from the CLN should be
weighted by the higher of the risk weight
of the reference entity or the risk weight of
the note issuer. The amount of exposure is
the book value of the note. If the CLN
principal is fully collateralized by securities
that are acceptable as credit risk mitigant
under Sec. X116 and provided such
Part VI - Page 28
collateral is constituted in a legally effective

manner as to give priority to the note
holders interest in the event of bankruptcy
of the note issuer, the risk weight of the
note issuer is substituted with the risk
weight associated with the relevant
security.
When the CLN is referenced to a basket
of reference entities and the contract
terminates and pays out on the first entity
to default in the basket, capital should be
held to consider the cumulative risk of all
the reference entities in the basket. This
means that the risk weights of all the
reference entities are added up and the sum
compared with the risk weight of the note
issuer. If the sum of the risk weights of all
the reference entities in the basket is higher
than the risk weight of the note issuer, then
this sum is adopted. The resultant riskweighted exposure to the basket is, however,
capped at ten (10) times the book value of
the note. Accordingly, the maximum capital
charge is 100% of the book value of the
note. The multiplier ten (10) is the reciprocal
of the BSP-required minimum capital
adequacy ratio of ten percent (10%).
If, on the other hand, the risk weight of
the note issuer is still higher than the sum of
the risk weights of all the reference entities
in the basket, then the risk weight of the note
issuer is adopted.
When the contract terminates and pays
out on the nth (other than the first) entity to
default in the basket, the treatment above
shall apply except that in aggregating the risk
weights of reference entities, the risk weight/
s of n1 entity/ies is/are excluded from the
computation. The bank may choose which
entity/ies to exclude.
If a CLN that pays out on the nth entity
to default is rated such that it meets the
criteria of a security with the highest credit
quality as defined under Appendix 46, only
the highest risk weight in the basket of
reference entities is compared with the risk
weight of the note issuer.
1633
05.12.31
If the CLN is issued by an SPV, the bank

is exposed to both the reference entity and
the collateral held by the SPV. Thus, the risk
weight/s of the reference entity/ies should
be compared with the risk weight of the
riskiest eligible collateral for purposes of
computing the risk-weighted exposure of the
note and the corresponding capital charge.
Subject to prior BSP clearance, a bank
may disapply the additive rule when a
very strong correlation among the
reference entities in the basket can be
demonstrated.
A CLN which is referenced to entities
in the basket proportionately should be riskweighted according to each reference entitys
share of protection under the contract. Thus,
if there are two (2) reference entities in a
P100.0 million contract, one (1) with a 100%
risk weight and a twenty percent (20%)
share and the other with a twenty percent
(20%) risk weight and an eighty percent
(80%) share, the risk-weighted exposure is
P36.0 million, i.e., P100.0 million x 20% x
100% + P100.0 million x 80% x 20%. The
corresponding capital charge is P3.6 million
(P36.0 million x 10%).
(2) Trading book. Positions in CLNs
taken up in the trading book should be
reported in the computation of the adjusted
risk-based capital adequacy ratio covering
combined credit risk and market risk under
Appendix 46.
(a) Standardized approach
The following describes the positions to
be reported for investments in CLNs for
purposes of calculating specific risk and
general market risk charges under the
standardized approach.
A CLN investment is treated as a
position in the note itself, with an embedded
credit default product. The CLN is subject
to the specific risk associated with the issuer
or the collateral when the issuer is an SPV.
In addition, it is subject to general market
risk that is a function of the maturity and
coupon or interest rate of the note. The
embedded credit default product creates a

notional position in the specific risk of the
reference obligation (with no additional
general market risk position created).
Specific risk
A CLN investment should be reported
as a long position on the reference obligation
and a long position on the note itself.
When a CLN is referenced to multiple
obligations in a basket, the positions reported
shall depend on the structure of the contract.
When the contract terminates and pays out
on the first obligation to default in the basket,
the note should be reported as long positions
in each of the reference obligations in the
basket, with the total capital charge for the
product capped at the book value of the
note.
When the contract terminates and pays
out on the nth (other than the first) entity to
default in the basket, the treatment above
shall apply except that in aggregating the risk
weights of the reference obligations, the risk
weight/s of n1 obligations is/are excluded
from the computation. The bank may choose
which obligations to exclude.
Subject to prior BSP clearance, a bank
may disapply the additive rule when a very
strong correlation among the reference
obligations in the basket can be
demonstrated.
The additive treatment may also be
disapplied when an nth-to-default CLN is
rated such that it meets the criteria of a
security with the highest credit quality as
defined under Appendix 46. Positions in the
reference obligations can be reported as a
single long position in a debt security with
the highest credit quality. A long position
on the note should also be reported whether
or not the CLN meets the criteria of a security
with the highest credit quality.
When the CLN is referenced to multiple
obligations under a proportionate structure,
positions in the reference obligations should
be reported according to their respective
proportions in the contract.
Part VI - Page 29
1633 - 1635.4
05.12.31
General market risk

A CLN investment creates a long
position in the note itself.
(b) Internal models approach
Banks may seek the BSPs approval to
include CLNs in their recognized models for
calculating capital charges. The detailed
requirements relating to the use of internal
models are set out in Annex A of Appendix 46.
While some banks may not be able to
run full internal models to calculate market
risk capital charges, they may, with the
necessary expertise and systems, use
preprocessing techniques to calculate capital
charge for CLNs. Banks wishing to adopt
these techniques should seek BSPs prior
consent. The preprocessing models are
subject to verification by the BSP.
d. Risk management
CLN structures are considered to be
exposed to greater risks than comparable
investments in direct obligations. In
particular, investing banks should be aware
of the potential legal risk arising from an
unenforceable contract. They should consult
their legal advisors about these and related
legal issues before engaging in such
transactions. In addition, all investments in
CLNs must be duly approved by a banks
board of directors and subjected to
appropriate risk management procedures.
e. Transitional arrangements
Banks which have outstanding
investments in CLNs, but which have not
been authorized under this Section to invest
in such, shall be given a period of ninety
(90) calendar days from 25 February 2004
(effectivity of Circular No. 417) to divest
themselves of such investments.
f. BSP approval not required. No prior
BSP approval is required to invest in CLNs
and similar products. However, it shall be
the responsibility of UBs/KBs to fully comply
with appropriate risk management standards
including, as a minimum, those prescribed
under this Section. The regulatory
requirements enumerated in Appendix 66
Part VI - Page 30
shall be fully complied with by UBs/KBs

investing in products allowed under this
Section.
Sec. 1635 Banks Exposures to Structured
Products. The following rules and
regulations shall govern the capital treatment
of banks exposures to structured products.
1635.1 Statement of policy. The BSP
aims to foster the development of a market
for new financial products in the country,
while at the same time ensure that banks
hold sufficient capital commensurate to the
risks inherent in these products.
1635.2 Definition. A structured
product refers to a financial instrument
where the return is a function of one (1) or
more underlying indices, such as interest
rates, equities and exchange rates. There
may also be embedded derivatives such as
swaps, forwards, options, caps, and floors
that reshape the risk-return pattern. For
purposes of this Subsection, structured
products do not include asset-backed
securities, credit-linked notes and other
similar instruments.
1635.3 Qualified banks. As a general
rule, only UBs and KBs with expanded
derivatives license may obtain exposures in
structured products. Banks without expanded
derivatives license may only invest in structured
products duly approved by the BSP.
1635.4 Capital treatment of banks
exposures to structured products
a. Banking book
(1) Risk weights. Capital charge for
structured products held in the banking book
1635.4 - 1636.3
05.12.31
shall depend on the rating of the issuing

entity, or rating of the collateral in case of
structured products issued by special
purpose vehicles (SPVs), given by the
following BSP-recognized international
credit rating agencies:
(a) Moodys
(b) Standard & Poors
(c) Fitch Ratings; and
(d) Such other international rating
agencies as may be approved by the
Monetary Board.
In cases where there are two (2) or more
types of collateral, capital charge shall
depend on the lowest rated collateral.
The mapping of ratings to the
corresponding risk weights shall be as
follows:
Risk weight
50%
100%
150%
Moodys
Standard
& Poor's
Aaa to Aa3
AAA to AAA1 to A3
A+ to ABaa1 to Baa3 BBB+ to
BBB-
Deduction
from total
of Tier 1 and Below Baa3
Tier 2 capital Unrated
management standards including, as a

minimum, those prescribed under this
Section. The regulatory requirements
enumerated in Appendix 66 shall be fully
complied with by UBs/KBs investing in
products allowed under this Section.
Sec. 1636 EFCDUs Investments in Foreign
Currency Denominated Structured
Products. The following guidelines allow
UBs and KBs without expanded derivatives
authority to invest in certain specified
structured products.
Fitch
Ratings
AAA to AAA+ to ABBB+ to
BBB-

encourages banks to diversify their EFCDU
investment portfolios in order to stabilize
earnings, control maturity mismatches and
minimize over concentration of exposures.
Below BBB- Below BBB-
1636.2 Scope. EFCDUs of UBs and

KBs without expanded derivatives authority
may invest, for their own account, in foreign
currency-denominated structured products
issued by banks and SPVs of high credit
quality: Provided, That the revenue streams
of such products may only be linked to
interest rate indices and/or foreign
exchange rates other than those that
involve the Philippine Peso: Provided,
further, That the minimum all-in return of
such investments may not be lower than
zero. For purposes of this Section,
structured products do not include assetbacked securities, credit-linked notes and
other similar instruments.
(2) Use of ratings. If an issuer of a

structured product has only one (1) rating
by any of the BSP-recognized international
rating agencies, that rating shall be used to
determine the risk weight of the product;
in cases where there are two (2) or more
ratings which map into different risk
weights, the higher of the lowest two (2)
risk weights should be used.
b. Trading book. Capital charge for
structured products held in the trading book
shall be determined in accordance with
Appendix 46.
No prior BSP approval is required to enter
into authorized transactions. However, it
shall be the responsibility of UBs/KBs to
fully comply with appropriate risk
1636.3 Other conditions

a. Maturity
The
maximum
contractual maturity of any investment in
structured products shall be five (5) years.
Part VI - Page 31
1636.3 - 1648.1
05.12.31
b. Credit quality of issuer

Acceptable issuers are banks and SPVs
collateralized by securities rated at least A
or its equivalent by an international rating
agency acceptable to the Monetary Board.
c. Booking Investments in
structured products as herein defined shall
be booked under banking book accounts
as follows: (1) DFVPL, (2) AFS, (3) Held
to Maturity (HTM); or (4) Unquoted Debt
Securities Classified as Loans, which shall
be accounted for in accordance with
Subsecs. X164.1, X388.5 and Appendix 33,
but not under the HFT category.
d. Prudential limits The total carrying
value of all investments in structured products
as defined herein at any given point in time
must not exceed twenty percent (20%) of the
total investment portfolio of the EFCDU
[combined amount of Trading Account
Securities (TAS), ASS and IBODI].
e. Risk management Investing banks
must have established internal processes to
identify, evaluate, monitor and manage the
risk exposures, e.g., credit risk, market risk,
liquidity risk, operational risk, legal risk,
compliance risk, created by their investments
in structured products. As a minimum:
(1) Such investments must be
specifically approved by the board of directors
and be subject to appropriate internal limits
and periodic reporting to the Board.
(2) Banks must comply with generally
accepted accounting and disclosure
standards and/or rules and regulations
prescribed by the BSP.
(3) An independent risk management
function must be in place.
(4) Banks should have the ability to
value their investments on a continuing and
consistent basis and to measure their
sensitivity to market movements. This
should include performing, at regular
intervals, stress tests that reflect extreme
market conditions. As part of the valuation
exercise, banks should be able to obtain
bid prices from the issuers of the investment
instruments on a monthly basis.
Part VI - Page 32
(5) Management should ensure that

the risks of the investments are accurately
aggregated in risk reports on a timely basis.
1636.4 Capital treatment of EFCDUs
The capital treatment shall be in accordance
with existing rules and regulations as
modified for structured instruments.
No prior BSP approval is required to enter
into authorized transactions. However, it
shall be the responsibility of UBs/KBs to fully
comply with appropriate risk management
standards including, as a minimum, those
prescribed under this Section. The
regulatory requirements enumerated in
Appendix 66 shall be fully complied with
by UBs/KBs investing in products allowed
under this Section.
1636.6 Sanctions. Non-compliance
with the provisions of this Section shall subject
the bank to a fine of one-tenth of one percent
(1/10 of 1%) of the outstanding investment
per day, but not to exceed P30,000 per day,
to be reckoned from the day the bank is
deemed in violation of regulations, until the
day the bank has complied with the
requirements. Banks may also be
temporarily or permanently prohibited from
such investments as circumstances may
warrant.
Sec. 1648 Investments in Securities Overlying
Securitization Structures. The following rules
shall govern banks investments in securities
overlying securitization structures.
aims to foster the development of a market
for new financial products in the country
1648.1 - 1648.5
05.12.31
and provide banks with expanded

opportunities for investment diversification,
while at the same time ensure that they
hold sufficient capital commensurate to the
risks inherent in these products.
1648.2 Definition. Securitization
structures refer to:
a. structures where the cash flow
from an underlying pool of exposures is
used to service at least two (2) different
stratified risk positions or tranches
reflecting different degrees of credit risk (also
known as traditional securitization); or
b. structures with at least two (2) different stratified risk positions or tranches
that reflect different degrees of credit risk,
where credit risk of an underlying pool of
exposures is transferred, in whole or in
part, through the use of credit derivatives
or guarantees that serve to hedge the credit
risk of the portfolio (also known as synthetic securitization).
1648.3 Qualified banks. UBs/KBs
with expanded derivatives authority may
invest in securities overlying any tranches
of securitization structures. UBs/KBs
without expanded derivatives authority
may also invest but only in securities
overlying tranches of securitization
structures that are rated at least A, or its
equivalent, by a BSP-recognized credit
rating agency.
1648.4 Capital treatment of
investments in securities overlying
securitization structures
a. Credit risk
(1) Risk weights. Capital charge for
investments in securitization structures
held in the banking book shall be based
on the latest rating given by any of the
following BSP-recognized credit rating
agencies:
(a) International rating agencies:
(i) Moodys
(ii) Standard & Poors

(iii) Fitch IBCA
(iv) Other international rating agencies
as may be approved by the Monetary Board
(b) Domestic rating agencies:
(i) PhilRatings
(ii) Other domestic rating agencies as
may be approved by the Monetary Board
The assignment of risk weights
corresponding to agency ratings shall be as
follows:
Risk weight Moodys
Standard Fitch
& Poors IBCA
AAA to
AAA to
AAAA-
PhilRatings
20%
Aaa to
Aa3
50%
A1 to A3 A+ to A- A+ to A- A
100%
Baa1+
to Baa3
Deduction Below
from total
Baa3
of Tier 1 and
Tier 2 capital Unrated
Aaa to Aa
BBB+
to BBB-
BBB+
toBBB-
Baa
Below
BBB-
Below
BBB-
Below Baa
(2) Use of ratings. Ratings of BSPrecognized credit rating agencies shall be

used as follows:
(a) Securities overlying securitization
structures created within the Philippines may
be rated by any BSP-recognized international
or domestic credit rating agency, while
securities overlying securitization structures
created outside of the Philippines may only
be rated by any of the international credit rating
agencies that are recognized by the BSP; and
(b) In cases when overlying securities
have split ratings which map into different risk
weights, the higher risk weight should be used.
b. Market risk. Capital charge for
securities overlying securitization structures
held in the trading book shall be determined
in accordance with Appendix 46 and the use
of agency ratings for such purpose shall be
consistent with the above principles.
1648.5 BSP approval not required. No
prior BSP approval is required to invest in
securities overlying securitization structures.
However, it shall be the responsibility of
UBs/KBs to fully comply with appropriate
Part VI - Page 33
1648.5 - X651.1
05.12.31
risk management standards including, as a

minimum, those prescribed under this
Section. The regulatory requirements
enumerated in Appendix 66 shall be fully
complied with by UBs/KBs investing in
products allowed under this Section.
Sec. 1650 Offering in the Philippines of
Products by Parent Bank and Branches
Abroad of the Parent Bank. Philippine
branches and subsidiaries of foreign banks shall:
a. Inform/notify the BSP if their parent
bank and/or branches abroad of their parent
bank offer or market products in the
Philippines, either through electronic means
(website) or through its local desks (within
bank premises); and
b. In cases when there are products being
offered, to submit to the appropriate SED
within ten (10) banking days from receipt of
Circular Letter dated 12 April 2005, the list of
products offered/marketed, the corresponding
manuals containing the policies and procedures,
the flow chart of transaction and the risk
management system for each particular product.
Sec. X651 Asset-Backed Securities. The
following regulations shall govern the
origination, issuance, sale, servicing and
administration of asset-backed securities
(ABS) by any bank including its subsidiaries
and affiliates engaged in allied activities,
which are domiciled in the Philippines.
a. Assets shall mean loans or
receivables existing in the books of the
Part VI - Page 34
originator prior to securitization. Such

assets are generated in the ordinary course
of business of the originator and may
include mortgage loans, consumption
loans, trade receivables, lease receivables,
credit card receivables and other similar
financial assets.
b. Asset-backed securities shall refer
to the certificates issued by a Special
Purpose Trust (SPT) representing undivided
ownership interest in the asset pool.
c. Asset pool shall mean a group of
identified, self-amortizing assets that is
conveyed the SPT issuing the ABS and such
other assets acquired as a consequence of
the securitization.
d. Clean-up call shall refer to an option
granted to the seller to purchase the
remaining assets in the asset pool.
e. Credit enhancement shall refer to
any legally enforceable scheme that is
intended to enhance the marketability of the
ABS and increase the probability that investors
receive payment of amounts due them.
f. Guarantor shall refer to an entity that
guarantees the repayment of principal and
interest on loans or receivables included in
the asset pool in the event of default by the
borrower.
g. Investible funds shall refer to the
proceeds of collection of loans or
receivables included in the asset pool which
are not yet due for distribution to investors.
h. Issuer shall refer to the SPT that
issues the ABS.
i. Originator shall refer to a bank and/
or its subsidiary or affiliate engaged in allied
activities that grants or purchases loans or
receivables and assembles them into a pool
for securitization.
j. Residual certificates shall refer to
certificates issued representing claims on the
remaining value of the asset pool after all
ABS holders are paid.
k. Seller shall refer to the entity which
conveys to the SPT the assets that constitute
the asset pool.
X651.1 - X651.5
05.12.31
l. Servicer shall refer to the entity

designated by the Issuer primarily to collect
and record payment received on the Assets,
to remit such collections to the Issuer and
perform such other services as may be
specifically required by the issuer excluding
asset management or administration.
m. Special Purpose Trust shall refer to
a trust administered by a trustee and created
solely for the purpose of issuing and
administering an ABS.
n. Trustee shall refer to the entity
designated to administer the SPT.
o. Underwriter shall refer to the entity
engaged in the act or process of distributing
and selling of the ABS either on guaranteed
or best effort basis.
X651.2 Authority. Any bank
including its subsidiaries and affiliates
engaged in allied activities, may securitize
its assets upon prior approval of the BSP.
X651.3 Management oversight. The
originator/seller shall have the securitization
program approved by its board of directors.
The originator/seller shall integrate such
securitization program into its corporate
strategic plan. The board of directors shall
ensure that the securitization of assets is
consistent with such program.
X651.4 Minimum documents
required. The application to securitize must
be accompanied by the following
documents as a minimum requirement:
a. Trust indenture evidencing the
conveyance of the assets from the seller to
the Issuer or SPT, the features of which shall
include the following:
(1) Title or nature of the contract in
noticeable print;
(2) The parties involved, indicating in
noticeable print, their respective legal
capacities, responsibilities and functions;
(3) Features and amount of ABS;
(5) Description and amount of assets

comprising the asset pool;
(6) Representations and warranties;
(7) Credit enhancements;
(8) Distribution of funds;
(9) Authorized investment of investible
funds;
(10) Rights of the investor;
(11) Reports to investors; and
(12) Termination and final settlement.
The trust indenture shall include as annexes
the servicing agreement between the trustee
and the servicer and the underwriting
agreement between the seller and the
underwriter.
b. Prospectus. As a minimum
requirement, it shall contain the following:
(1) Summary of the contents of the
prospectus;
(2) Description of each class of
certificate, including such matters as
probable yields, payment dates and priority
of payments;
(3) Description of the assets comprising
the Asset Pool as well as the representations
and warranties set forth by the originator
and/or seller;
(4) Assumptions underlying the cash
flow projections for each class of certificate;
(5) Description of any credit enhancements;
(6) Identity of the servicer; and
(7) Disclosure statements as required
c. Specimen of application to purchase
ABS. It shall include the terms and
conditions of the purchase and the
disclosures required under Subsec. X651.6.
d. Specimen of certificate. It shall
indicate the features of the ABS and the
disclosures required under Subsec. X651.6.
X651.5 Minimum features of
ABS.The ABS shall be pre-numbered and
printed on security paper. The ABS shall be
signed and authenticated by the trustee. They
are transferable by endorsement of the
Part VI - Page 35
X651.5 - X651.8
05.12.31
certificate. The transfer shall be recorded in

the books of the trustee, indicating the
names of the parties to the transaction, the
date of the transfer and the number of the
certificate transferred.
The minimum denomination of any ABS
shall be P10,000.
X651.6 Disclosures. The following
disclosures must be provided in a
conspicuous manner in any document
inviting investment, application to purchase
ABS and the certificate itself:
a. The ABS do not represent deposits or
liabilities of the originator, servicer or trustee
and that they are not insured with PDIC;
b. The investor has an investment risk;
c. The trustee does not guarantee the
capital value of the ABS or the collectibility
of the asset pool; and
d. The right of an investor.
The investors shall be required to sign
an acknowledgment indicating that they have
read and understood the disclosures.
X651.7 Conveyance of assets
a. The conveyance of the assets
comprising the asset pool shall be done within
the context of a true sale and, for this purpose,
the seller may not retain in its books the ABS,
except the residual certificate, if any.
b. The seller shall have no obligation
to repurchase or substitute an asset or any
part of the asset pool at any time, except in
cases of a breach of representation or
warranty, or under a revolving structure, to
replace performing assets which have been
paid out in part or full.
c. The seller shall be under no
obligation to provide additional assets to the
SPT to maintain a coverage ratio of
collateral to outstanding ABS. A breach of
this requirement will be considered a credit
enhancement and should be charged against
capital. However, this will not apply to an
asset pool conveyed under a revolving
structure such as the securitization of credit
card receivables.
Part VI - Page 36
d. Securitized assets shall be

considered the subject to a true sale
between the seller and the SPT. Sold assets
shall be taken off the books of the seller and
shall be transferred to the books of the SPT.
For accounting purposes, the transfer
shall only be considered a true sale if the
following three (3) conditions have been
satisfied:
(1) the transferred assets have been isolated and put beyond the reach of the seller
and its creditor;
(2) the SPT has the right to pledge or
exchange its interest in the assets; and
(3) the seller does not effectively maintain control over the transferred assets by
any concurrent agreement.
e. All expenses incidental to underwriting, conveyance of the asset pool
including expenses for credit enhancement
may be paid by the originator/seller:
Provided, That no further expenses shall be
borne by the originator/seller after the asset
pool has been conveyed to the SPT.
X651.8 Representations and
warranties
a. Standard representations and
warranties refer to an existing state of facts
that the originator, seller or servicer can
either control or verify with reasonable due
diligence at the time the assets are sold. Any
breach of representation or warranty may
give rise to legal recourse.
b. The representations or warranties
shall be clear and explicit and, in particular,
shall not relate to the future creditworthiness
of the assets in the asset pool or the performance of the SPT or the securities issued.
c. Any agreement to pay damages as a
result of breach of warranties and
representations shall hold only where:
(1) there is a well-documented
negotiation of the agreement in good faith;
(2) the burden of proof for a breach of
representation or warranty rests with the
other party;
X651.8 - X651.13
05.12.31
(3) damages are limited to the loss

incurred as a result of the breach; and
(4) there is a written notice of claim
specifying the basis for the claim.
The BSP shall be notified of any instance
where a bank or its subsidiaries/affiliates has
agreed to pay damages arising out of any
breach of representation or warranty.
X651.9 Third party review. A due
diligence review by an independent entity
mutually agreed upon by the seller and the
Issuer shall be done before the assets are
sold.
X651.10 Originator and seller
a. The seller may itself be the
originator, and may likewise be designated
as the servicer.
b. The seller or originator shall deliver
to the trustee all original documents or
instruments with respect to each asset sold.
X651.11 Trustee and issuer
a. The trustee shall be the trust
department of a bank licensed to do business
in the Philippines.
b. The trustee shall have the right to
manage or administer the asset pool. The
trustee shall see to it that necessary measures
are taken to protect the asset pool.
c. The trustee shall undertake a
performance review of the asset pool at least
quarterly and shall prepare a report to
investors indicating, among others,
collections, fees and other expenses as well
as defaults, which report shall be made
available to the investors at anytime after
thirty (30) days from end of the reference
quarter.
d. The trustee shall initiate all civil
actions including foreclosure of mortgaged
properties to effect collection of receivables
in the asset pool. The servicer or any other
party may be designated by the trustee to
perform such function on a case-by-case
basis.
e. The trustee may invest the Investible

funds only in obligations issued and/or fully
guaranteed by the government of the
Republic of the Philippines or by the BSP
and such other high-grade readily marketable
debt securities as the BSP may approve.
f. The trustee shall designate a
replacement of the servicer if the latter fails
to satisfactorily perform its duties and
responsibilities according to the terms and
conditions of the servicing agreement.
X651.12 Servicer
a. The servicer shall perform its duties
according to the terms and conditions of the
servicing agreement and such other written
instructions as the trustee may issue on a
case-by-case basis. Collections made by the
servicer shall be remitted promptly to the
trustee or as may be agreed upon by the
parties in the servicing agreement, but in no
case shall the remittance period be longer
than one (1) month.
b. The servicer shall prepare periodic
reports as may be required by the trustee.
c. The servicer shall report to the
trustee within thirty (30) days, any
borrower which fails to pay its debt at
maturity date or any adverse development
that may affect the collectibility of any
loan account or receivable comprising the
Asset pool.
d. The servicer shall have no authority
to waive penalties and charges except with
a written authority from the trustee.
X651.13 Underwriter
a. A UB or IH shall have written
policies and procedures on underwriting of
ABS.
b. The underwriter shall perform its
functions according to the terms and
conditions of the underwriting agreement.
c. An underwriter may deal in ABS,
except those administered by its trust
department, the trust departments of its
subsidiaries/affiliates, the trust department
Part VI - Page 37
X651.13 - X651.16
05.12.31
of its parent bank or the trust department of

its parent banks subsidiaries/affiliates.
d. A UB/IH may act as underwriter,
on a firm basis, of ABS except those
administered by its trust department, the
trust departments of its subsidiaries/affiliates,
the trust department of its parent bank or
the trust department of its parent banks
subsidiaries/affiliates.
e. The underwriter may not extend
credit for the purpose of purchasing the ABS
which such UB/IH underwrites or that
which is underwritten by its subsidiaries/
affiliates, its parent bank or its parent banks
subsidiaries/affiliates.
X651.14 Guarantor
a. Only an entity the regular business
of which includes the issuance of guarantees
or similar undertaking may act as guarantor.
b. The guarantor must have the
financial capacity to perform its
responsibilities in accordance with the
terms and conditions of the guarantee
agreement. It shall submit to the trustee
at least once in every six (6) months such
financial reports as the trustee may
require.
c. The originator or seller may not issue
a counter-guarantee in favor of the guarantor.
X651.15 Credit enhancement. Credit
enhancement may be provided in any of the
following manner:
a. Standby letter of credit issued by a
UB/KB other than the originator/seller or its
subsidiary/affiliate, its parent bank or the
parent banks subsidiary/affiliate, and trustee
or its subsidiary/affiliate;
b. Surety bond issued by any insurance
company other than the originators/sellers
subsidiary or affiliate, the subsidiary or
affiliate of the originators/sellers parent
bank and the trustee or its subsidiary/affiliate;
c. Guarantee issued by any entity other
than the originator/seller or its subsidiary/
affiliate, its parent bank or the parent banks
Part VI - Page 38
subsidiary/affiliate, and trustee or its

subsidiary/affiliate;
d. Overcollateralization provided by
the originator/seller wherein the assets
conveyed to the SPT exceed the amount of
securities to be issued.
Losses arising from overcollateralization
shall be recognized by the originator/seller
upfront. Such losses shall be treated as
capital charges.
e. Spread account wherein the income
from the underlying pool of receivables is
made available to cover any shortfall in the
repayment of ABS. The spread account shall
be handled by the trustee which shall
account for it separately. If not needed, this
"spread" generally reverts to the holder of
the residual certificate.
f. Subordinated securities that are
lower ranking, or junior to other obligations
and are paid after claims to holders of senior
securities are satisfied.
g. Other credit enhancements as may
be approved by the Monetary Board.
To be consistent with the concept of true
sale, subordinated securities shall be sold to
third party investors other than originators/
sellers parent company or its subsidiary/
affiliate and the trustee or its subsidiary/affiliate
or, if held by the seller, capital charges should
be booked upfront. Otherwise, the
subordinated securities shall be treated as
deposit substitute subject to legal reserves.
X651.16 Clean-up call. A clean-up
call may be exercised by the seller once the
outstanding principal balance of the
receivable component of the asset pool falls
to ten percent (10%) or less of the original
principal balance of the asset pool. Where
the asset pool includes foreclosed and other
assets, such assets shall be included in the
clean-up call and the consideration thereof
shall be at current market value. Such a cleanup call shall not be considered recourse or
in violation of Subsec. X651.7 on
conveyance of assets.
X651.17 - X654.1
05.12.31
X651.17 Prohibited activities

a. The seller may not, under any
circumstance, designate its trust department,
the trust department of its subsidiaries/
affiliates, the trust department of its parent
bank or the trust department of its parent
banks subsidiaries/affiliates as trustee.
b. Any director, officer or employee of
the originator, seller or servicer may not
serve as a member of the board of directors
or trust committee of the trustee or vice versa
for the duration of the securitization.
c. The trust indenture shall not contain
any stipulation whereby the seller, its
subsidiaries/affiliates, its parent bank or the
parent banks subsidiaries/affiliates shall
commit to extend any credit facility to the
issuer and/or trustee.
d. The ABS shall not be eligible as
collateral for a loan extended by a bank
which originated/sold the underlying assets
of such ABS.
e. The trust department of a bank that
has discretion in the management of any
trust or investment management account
may not purchase for said trust/investment
management account ABS administered by
the trust department of the same bank, the
trust department of such trustees
subsidiaries/affiliates, the trust department
of such trustees parent bank and the trust
department of the parent banks subsidiaries/
affiliates.
f. The trustee may not designate its
subsidiary/affiliate, its parent or the parents
subsidiaries/affiliates as servicer or vice
versa.
X651.18 Amendment. Any
amendment to the trust indenture shall
require the prior approval of the BSP.
X651.19 Miscellaneous provision
Without prior approval of the BSP, a bank
or any entity supervised by the BSP may act
as trustee or servicer in a securitization
scheme originated by an entity not
supervised by the BSP: Provided, That the

assets which are the subject of such
securitization are existing in the books of the
entity prior to securitization: Provided,
further, That such entity acting as trustee or
servicer is not a subsidiary/affiliate of the
originator/seller, its parent bank or the
parent banks subsidiaries/affiliates or vice
versa: Provided, finally, That such entity
acting as trustee may not designate its
subsidiaries/affiliates, its parent or the
parents subsidiaries/affiliates as servicer
or vice versa.
X651.20 Report to BSP. The trustee
bank shall submit a report of every
securitization scheme in formats to be
prescribed by the BSP. The report shall be
submitted to the appropriate SED of BSP,
within fifteen (15) banking days after end of
every reference quarter. Such report shall
be considered a Category A report for
purposes of implementing fines in the
submission of required reports pursuant to
existing regulations.
Sec. X654 Recognition and Derecognition
of Domestic Credit Rating Agencies for
Bank Supervisory Purposes. The following
regulations shall govern the recognition and
derecognition of domestic credit rating
agencies (CRAs) for bank supervisory
purposes.
X654.1 Statement of policy. The
introduction in the financial market of new
and innovative products create increasing
demand for and reliance on CRAs by the
industry players and regulators as well. As
a matter of policy, the BSP wants to ensure
that the reliance on credit ratings is not
misplaced. The following rules and
regulations that shall govern the recognition/
derecognition of domestic CRAs for bank
supervisory purposes.
Part VI - Page 39
X654.2
05.12.31
X654.2 Minimum eligibility criteria

Only ratings issued by CRAs
recognized by the BSP shall be considered
for BSP bank supervisory purposes. The
BSP, through the Monetary Board, may
officially recognize a credit rating agency
upon satisfaction of the following
requirements:
a. Organizational structure
(1) A domestic CRA must be a duly
registered company under the Securities and
Exchange Commission (SEC); and
(2) A domestic CRA must have at least
five (5) years track record in the issuance of
reliable and credible ratings. In the case of
new entrants, a probationary status may be
granted: Provided, That the CRA employs
professional analytical staff with experience
in the credit rating business.
b. Resources
(1) Human Resources
(a) The size and quality of the CRAs
professional analytical staff must have the
capability to thoroughly and competently
evaluate the assessed/rated entitys
creditworthiness;
(b) The size of the CRAs professional
analytical staff must be sufficient to allow
substantial on-going contact with senior
management and operational levels of
assessed/rated entities as a routine
component of the surveillance process;
(c) The CRA shall establish a Rating
Committee composed of adequately
qualified and knowledgeable individuals in
the rating business, majority of whom must
have at least five (5) years experience in credit
rating business;
(d) The directors of the CRA must
possess a high degree of competency
equipped with the appropriate education and
relevant experience in the rating business;
(e) The directors, officers, members of
the rating committee and professional
analytical staff of the CRA have not at any
time been convicted of any offense involving
moral turpitude or violation of the Securities
Regulation Code; and
Part VI - Page 40
(f) The directors, officers, members of

the rating committee and professional
analytical staff of the CRA are not currently
involved as a defendant in any litigation
connected with violations of the Securities
Regulation Code nor included in the BSP
watchlist.
(2) Financial resources
(a) The CRA must have the financial
capability to invest in the necessary
technological infrastructure to ensure speedy
acquisition and processing of data/
information and timely release of reliable
and credible ratings; and
(b) The CRA must have financial
independence that will allow it to operate
free from economic and political pressures.
c. Objectivity
(1) The CRA must use a rigorous and
systematic assessment methodology that has
been established for at least one (1) year;
however, a three (3)-year period is
preferable;
(2) The assessment methodology of the
CRA must be based both on qualitative and
quantitative approaches; and
(3) The CRA must use an assessment
methodology that is subject to on-going
review and is responsive to changes in the
operations of assessed/rated entities.
d. Independence
(1) The CRA must be free from control
of and undue influence by the entities it
assesses/rates;
(2) The assessment process must be
free from ownership pressures to allow
management to exercise independent
professional judgement;
(3) Persons directly involved in the
assessment process of the CRA are free from
conflicts of interest with assessed/rated
entities; and
(4) The CRA does not assess/rate an
associate entity.
e. Transparency
(1) A general statement of the
assessment methodology used by the CRA
should be publicly available;
X654.2 - X654.3
05.12.31
(2) The CRA shall disseminate to the

public thru a well-circularized publication,
all assigned ratings disclosing whether the
rating issued is solicited or unsolicited;
(3) The rationale of ratings issued and
risk factors considered in the assessment
should be made available to the public;
(4) The ratings issued by the CRA
should be available both to domestic and
foreign institutions with legitimate interest;
and
(5) Publication of changes in ratings
together with the basis for the change should
be done on a timely basis.
f. Disclosure requirements
(1) Qualitative disclosures
(a) Definition of ratings along with
corresponding symbols;
(b) Definition of what constitutes a
default, time horizon within which a default
is considered and measure of loss given a
default; and
(c) Material changes within the CRA
(i.e., changes in management or
organizational structure, rating personnel,
modifications of rating practices, financial
deterioration) that may affect its ability to
provide reliable and credible ratings.
(2) Quantitative disclosures
(a) Actual default rates experienced in
each rating category; and
(b) Rating transitions of assessed/rated
entities over time (i.e., likelihood of an AAA
credit rating transiting to AA etc. over time).
g. Credibility
(1) The CRA must have a general
reputation of high standards of integrity
and fairness in dealing with its clients and
conducts its business in an ethical
manner;
(2) The CRA is generally accepted by
predominant users in the market (i.e.,
issuers, investors, bankers, financial
institutions, securities traders); and
(3) The CRA must carry out its rating
activities with due diligence to ensure
ratings are fair and appropriate.
For purposes of this Section, a subsidiary

refers to a corporation, more than fifty
percent (50%) of the voting stock of which
is owned or controlled directly or indirectly
by the CRA while an affiliate refers to a
corporation, not more than fifty percent
(50%) but not less than ten percent (10%)
of the voting stock of which is owned or
controlled directly or indirectly by the
CRA.
Control exists when the parent owns
directly or indirectly through subsidiaries
more than one-half of the voting power of
an enterprise unless, in exceptional
circumstance, it can be clearly demonstrated
that such ownership does not constitute
control. Control may also exist even when
ownership is one-half or less of the voting
(a) power over more than one-half of
with other stockholders;
(b) power to govern the financial and
statute or an agreement;
(c) power to appoint or remove the
directors or equivalent governing body;
(d) power to cast the majority votes at
(e) any other arrangement similar to any
of the above.
h. Internal compliance procedures
(1) The CRA must have the necessary
internal procedures to prevent misuse or
unauthorized disclosure of confidential/ nonpublic information; and
(2) The CRA must have rules and
regulations that prevent insider trading and
other conflict of interest situations.
The application of a domestic CRA for
BSP recognition shall be submitted to the
appropriate SED of the BSP together with
the following information/documents:
Part VI - Page 41
X654.3 - X654.6
05.12.31
a. An undertaking
(1) That the CRA shall comply with
regulations, directives and instructions
which the BSP or other regulatory agency/
body may issue from time to time; and
(2) That the CRA shall notify the BSP
in writing of any material changes within
the organization (i.e., changes in
management or organizational structure,
rating personnel, modifications of its rating
practices, financial deterioration) that may
affect its ability to provide reliable and
credible ratings.
b. Other documents/information:
(1) Brief history of the CRA, major rating
activities handled including information on
the name of the client, type of instruments
rated, size and year of issue;
(2) Audited financial statements for the
past three (3) years and such other
information as the Monetary Board may
consider necessary for selection purposes;
(3) For new entrants, employment of
professional analytical staff with experience
in the credit rating business;
(4) List of major stockholders/partners
(owning at least ten percent (10%) of the
voting stocks of the CRA directly or along
with relatives within the 1 st degree of
consanguinity or affinity);
(5) List of directors, officers, members
of the rating committee and professional
analytical staff of the CRA; including their
qualifications, experience related to rating
activities, directorship and shareholdings in
the CRA and in other companies, if any;
(6) List of subsidiaries and affiliates
including their line of business and the nature
of interest of the CRA in these companies;
(7) Details of the denial of a previous
request for recognition, if any (i.e.,
application date, date of denial, reason for
denial etc.); and
(8) Details of all settled and pending
litigations connected with the securities
market against the CRA, its directors, officers,
stockholders, members of the rating
Part VI - Page 42
committee and professional analytical staff,

if any.
X654.4 Inclusion in BSP list. The
BSP will regularly circularize to all banks
and non-bank financial institutions an
updated list of recognized CRAs. The BSP,
however, shall not be liable for any damage
or loss that may arise from its recognition
of CRAs to be engaged by users.
X654.5 Derecognition of credit rating
agencies
a. Grounds for derecognition. Credit
rating agencies may be derecognized from
the list of BSP recognized CRAs under the
(1) Failure to maintain compliance with
the requirements under Subsec. X654.2 or
any willful misrepresentation in the
information/documents required under
Subsec. X654.3;
(2) Involvement in illegal activities such
as ratings blackmail; creation of a false
market or insider trading; divulging any
confidential information about a client
without prior consent to a third party
without legitimate interest; indulging in
unfair competition (i.e., luring clients of
another rating agency by assuring higher
ratings etc.); and
(3) Any violations of applicable laws,
b. Procedure for derecognition. A CRA
shall only be derecognized upon prior notice
and after being given the opportunity to
defend itself.
X654.6 Recognition of PhilRatings as
domestic credit rating agency for bank
supervisory purposes. Credit ratings
assigned by Philippine Rating Services
Corporation (PhilRatings) may be used,
among others, for determining appropriate risk
weights in ascertaining compliance with
existing rules and regulations on risk-based
capital requirements.
X655 - X659.6
05.12.31

Sec. X658 Examination by the BSP. The
term examination shall, henceforth, refer
to an investigation of an institution under
the supervisory authority of the BSP to
determine compliance with laws and
regulations. It shall include determination
that the institution is conducting its business
on a safe and sound basis. Examination
requires full and comprehensive looking
into the operations and books of
institutions, and shall include, but need not
be limited to, the following:
a. Determination of the banks
solvency and liquidity position;
b. Evaluation of asset quality as well
as determination of sufficiency of
valuation reserves on loans and other
risk assets;
c. Review of all aspects of bank
operations;
d. Assessment of risk management
system, including the evaluation of the
effectiveness of the bank managements
oversight functions, policies, procedures,
internal control and audit;
e. Appraisal of overall management
of the bank;
f. Review of compliance with
applicable laws, rules and regulations;
and
g. Any other activities relevant to the
above.
Regular or periodic examination shall
be done once a year, with an interval of
twelve (12) months from the last date
thereof. Special examination may be
conducted earlier, or at a shorter interval,
when authorized by the Monetary Board
by an affirmative vote of five (5)
members.
In the full exercise of the supervisory
powers of the BSP, examination by the BSP
of institutions shall be complemented by
overseeing thereof. In this regard, the term
overseeing shall refer to a limited
investigation of an institution, or any

investigation/s that is limited in scope,
conducted to inquire into a particular area/
aspect of an institutions operations, for the
purpose of overseeing that laws and
regulations are complied with, inquiring
into the solvency and liquidity of the
institution, enforcing prompt corrective
action, or such other matters requiring
immediate investigation: Provided,
That - (i) specific authorizations be issued
by the Deputy Governor, SES, and
(ii) periodic summary reports on overseeings
made be submitted to the Monetary Board.
Sec. X659 Internationally Accepted
Credit Rating Agencies. Internationally
accepted CRAs are recognized for bank
supervisory purposes to undertake local
and national ratings: Provided, That said
CRAs shall have at least a representative
office in the Philippines. Accordingly,
credit ratings assigned by said CRAs may
be used, among others, as basis for
determining appropriate risk weights in
ascertaining compliance with existing
rules and regulations on risk-based
X659.6 Recognition of Fitch
Singapore Pte., Ltd. as international
credit rating agency for bank supervisory
purposes. The national or domestic credit
ratings of Fitch Singapore Pte. Ltd., a
BSP-recognized international credit
rating agency with representative office
in the Philippines, is hereby recognized
by the BSP for bank supervisory purposes.
Accordingly, national or domestic credit
ratings assigned by Fitch Singapore Pte.
Ltd. may be used, among others, as basis
for determining appropriate risk weights
in ascertaining compliance with existing
rules and regulations on risk-based capital
requirements.
Part VI - Page 43
X660 - X691.1
08.12.31
Sec. X660 Disclosure of Remittance

Charges and Other Relevant Information
It is the policy of the BSP to promote the
efficient delivery of competitively-priced
remittance services by banks and other
remittance service providers by promoting
competition and the use of innovative
payment systems, strengthening the
financial infrastructure, enhancing access to
formal remittance channels in the source
and destination countries, deepening the
financial literacy of consumers, and
improving transparency in remittance
transactions, consistent with sound banking
practices.
Towards this end, banks providing
overseas remittance services shall disclose
to the remittance sender and to the
recipient/beneficiary, the following
minimum items of information regarding
remittance transactions, as defined herein:
a. Transfer/remittance fee - charge for
processing/sending the remittance from
the country of origin to the country of
destination and/or charge for receiving the
remittance at the country of destination;
b. Exchange rate rate of conversion
from foreign currency to local currency,
e.g., peso-dollar rate;
c. Exchange rate differential/spread foreign exchange mark-up or the
difference between the prevailing BSP
reference/guiding rate and the exchange/
conversion rate;
d. Other currency conversion charges
- commissions or service fees, if any;
e. Other related charges - e.g.,
surcharges, postage, text message or
telegram;
f. Amount/currency paid out in the
recipient country - exact amount of money
the recipient should receive in local
currency or foreign currency; and
g. Delivery time to recipients/
beneficiaries - delivery period of
remittance to beneficiary stated in number
of days, hours or minutes.
Part VI - Page 44
Banks shall likewise post said

information in their respective websites
and display them prominently in
conspicuous places within their premises
and/or remittance/service centers.
(Circular No. 534 dated 26 June 2006)

Sec. X691 Anti-Money Laundering
Regulations. Banks, OBUs, QBs, trust
entities, NSSLAs, pawnshops, and all
other institutions, including their
subsidiaries and affiliates supervised and/or
regulated by the BSP, otherwise known
as covered institutions shall comply with
the provisions of R.A. No. 9160, otherwise
known as the Anti- Money Laundering
Act of 2001 and its Implementing Rules
and Regulations (IRRs) in Appendix 52 and
those in Appendix 52a.
(As amended by Circular Nos. 612 dated 13 June 2008 and 564
dated 03 April 2007)
X691.1 Minimum guidelines for

fund transfers and correspondent
banking account opening and customer
identification. Banks shall adopt the
minimum prescribed guidelines that
contain the salient and relevant policies
related to electronic fund transfers in
Appendix 52b and correspondent banking
transactions in Appendix 52c.
The prescribed minimum guidelines
should be incorporated as part of the
standard operating procedures manual
and wider anti-money laundering
program which must be adhered to at
all times. Enhancements may be
introduced to these minimum guidelines
to suit the particular institutions risk
profile but taking into consideration the
minimum requirements prescribed under
existing anti-money laundering rules and
regulations of the BSP, particularly in the
area of Know Your Customer/Customer
Due Diligence.
X691.2 - X695
08.12.31
X691.2 - X691.4 (Reserved)

1691.4 Electronic monitoring
systems for money laundering. UBs and
KBs are hereby required to adopt an
electronic money laundering transaction
monitoring system which at the minimum
shall detect and raise to the banks
attention, transactions and/or accounts that
qualify either as covered transactions or
suspicious transactions as defined under
Rules 3.b and 3.b.1 of Appendix 52,
respectively, of R.A. No. 9160 otherwise
known as the Anti-Money Laundering Act
of 2001, as amended.
The system must have at least the
following functionalities:
a. Covered and suspicious transaction
monitoring performs statistical analysis
and profiling;
b. Watch list monitoring checks
transfer parties (originator, beneficiary and
narrative fields) and the existing customer
database for any listed undesirable
individual or corporation;
c. Investigation - checks for given
names throughout the history of payment
stored in the system;
d. Can generate both the covered
transaction reporting (CTR) and the
suspicious transaction reporting (STR);
e. Must provide complete audit trail;
f. Capable of aggregating information
and statistics for reporting purposes; and
g. Has the capability to support the
investigation of alerts surfaced by the system.
UBs and KBs are given up to 14 October
2007 to put in place the electronic money
laundering transaction monitoring system.
UBs and KBs with existing electronic
system of flagging and monitoring
transactions already in place shall ensure
that their existing system is fully
compliant with and has similar
functionalities as those required above
by 14 October 2007.
X691.5 - X691.8 (Reserved)

X691.9 Sanctions and penalties
a. Whenever a covered institution
violates the provisions of Section 9 of
R.A. No. 9160 or of this Section, the officer(s)
or other persons responsible for such
violation shall be punished by a fine of not
less than P50,000 nor more than P200,000
or by imprisonment of not less than two (2)
years nor more than ten (10) years, or both,
at the discretion of the court pursuant to
Section 36 of R.A. No. 7653, otherwise
known as The New Central Bank Act.
b. Without prejudice to the criminal
sanctions prescribed above against the
culpable persons, the Monetary Board may,
at its discretion, impose upon any covered
institution, its directors and/or officers for
any violation of Section 9 of R.A. No. 9160,
the administrative sanctions provided under
Sec. X695 Valid Identification (ID) Cards
for Financial Transactions. The following
guidelines govern the acceptance of valid
ID cards for all types of financial
transactions by banks, including financial
transactions involving overseas Filipino
workers (OFWs), in order to promote
access of Filipinos to services offered by
formal FIs, particularly those residing in the
remote areas, as well as to encourage and
facilitate remittances of OFWs through the
banking system:
a. Clients who engage in a financial
transaction with covered institutions for the
first time shall be required to present the
original and submit a clear copy of at least
one (1) valid photo-bearing ID document
issued by an official authority.
For this purpose, the term official
authority shall refer to any of the following:
(1) Government of the Republic of the
Philippines;
Part VI - Page 45
X695 - X699
08.12.31
(2) Its political subdivisions and

instrumentalities;
(3) GOCCs; and
(4) Private entities or institutions
registered with or supervised or regulated
either by the BSP or SEC or IC.
Valid IDs include the following:
(a) Passport
(b) Drivers license
(c) PRC ID
(d) NBI clearance
(e) Police clearance
(f) Postal ID
(g) Voters ID
(h) Barangay certification
(i) GSIS e-Card
(j) SSS card
(k) Senior Citizen card
(l) OWWA ID
(m) OFW ID
(n) Seamans book
(o) Alien Certification of Registration/
Immigrant Certificate of Registration
(p) Government office and GOCC ID
(e.g., AFP, HDMF IDs)
(q) Certification from the NCWDP
(r) DSWD certification
(s) IBP ID; and
(t) Company IDs issued by private
entities or institutions registered with or
supervised or regulated either by the BSP,
SEC or IC.
b. Students who are beneficiaries of
remittances/fund transfers and who are
not yet of voting age, may be allowed to
present the original and submit a clear
copy of one (1) valid photo-bearing
school ID duly signed by the principal
or head of the school.
Part VI - Page 46
c. Banks shall require their clients to

submit a clear copy of one (1) valid ID on
a one-time basis only, or at the
commencement
of
a
business
relationship. They shall require their
clients to submit an updated photo and
other relevant information whenever the
need for it arises.
The foregoing shall be in addition to
the customer identification requirements
under Rule 9.1.c of the Revised IRRs of
R.A. No. 9160, as amended (Appendix 52).
For purposes of this Section, financial
transactions may include remittances,
among others, as falling under the
definition of transaction. Under the
Anti-Money Laundering Act of 2001, as
amended, a financial transaction is any act
establishing any right or obligation or
giving rise to any contractual or legal
relationship between the parties thereto.
It also includes any movement of funds by
any means with a covered institution.
(Circular No. 564 dated 03 April 2007 as amended by Circular
No. 608 dated 20 May 2008)

Sanctions. Except as otherwise
prescribed in Subsec. X691.9, any
violation of the provisions of this Part
shall be subject to Sections 36 and 37 of
R.A. No. 7653.
R. A. No. 7653 on banks, their directors
APP. 1
05.12.31
GUIDELINES FOR THE ISSUANCE OF A UNIVERSAL BANKING AUTHORITY

(Appendix to Subsec. X101.2)
I. QUALIFICATION REQUIREMENTS
A. Minimum Capital Required. A KB
applying for a universal banking (UB)
authority shall have capital equivalent to at
least the amount prescribed by the
Monetary Board for UBs. The term capital
shall have the same meaning as defined in
Sec. X106 prescribing the required
minimum capitalization for each bank
category.
The merger or consolidation of banks,
or that of a bank and an investment house
as a means of meeting the minimum
capitalization requirement for a UB is
encouraged. The revaluation of the
premises, improvements and equipment of
the institutions involved in a merger or
consolidation may be allowed under Sec.
X112.
B. Financial Resources, Past Performance
and General Compliance with Banking
Laws and Regulations
1. Applicant bank shall not have
incurred any deficiency in the minimum
capital to risk assets ratio prescribed
by the Monetary Board pursuant to
Section 34 of R.A. No. 8791 for the year
preceding the filing of application. It shall
have sufficient valuation reserves to cover
estimated losses.
2. Applicant bank shall not have
incurred net deficiencies in its reserves
against deposit and deposit substitute
liabilities for the three (3)-month period
immediately preceding the filing of
application. In addition, applicant banks
liquidity ratios such as primary reserves to
deposit liabilities and primary and
secondary reserves to deposit and demand
liabilities shall at least be equal to the
averages of the UB sector as of the end of

the quarter immediately preceding the date
of application.
3. Applicant bank shall show
profitable operations for the past calendar
year immediately preceding the filing of
application. Its ratio of net earnings to
average capital accounts should indicate
satisfactory returns on stockholders
investments.
4. Applicant bank has substantially
complied with banking laws or orders,
instructions, or regulations issued by the
Monetary Board or orders, instructions, or
rulings by the Governor. Major/important
exceptions and findings by BSP examiners
have been corrected or satisfactorily
explained.
C. Banking Facilities, Managerial
Capability, Competence, Experience and
Integrity of Directors, Principal Officers
and Key Personnel
1. The applicant bank shall manifest
adequate banking facilities and managerial
capability in commercial banking operations
as shown by, among other things, its branch
network, subsidiaries and allied
undertakings, FCDU/EFCDU and foreign
trade transactions, participation in
syndicated lending, trust services, etc.
2. The applicant bank shall indicate in
the application those officers and key
personnel having the appropriate training
and/or experience in investment banking
and related functions are available/
obtainable by the bank.
The application shall be supported by
the updated bio-data of the banks directors
and principal officers, including the officers
and key personnel who will handle the
investment banking and related functions.
Appendix 1 - Page 1
APP. 1
05.12.31
II. FEASIBILITY STUDY

feasibility study, which shall include, in
addition to the usual content of such study,
the following information:
A. Capitalization and Ownership
1. A schedule showing the computation
of the applicant banks capital accounts
taking into consideration capital as defined
under Sec. X106 and, if applicable, the
merger or consolidation scheme to meet the
capitalization requirement as allowed under
Secs. X111 and X112.
2. A list of direct and indirect loans to
DOSRI which are unsecured, indicating the
original amount, date granted, outstanding
balance and classification (i.e., whether
current or past due) of each DOSRI loan.
3. A summary of holdings of
stockholders classified as to citizenship and
family/business group indicating the number
of shares subscribed in the applicant bank and
the corresponding percentage of each
shareholding to total shareholdings.
4. A list of individual stockholders
grouped according to family/business
group, indicating the TIN, citizenship, type
of shares held (whether voting or non-voting,
common or preferred), number of shares
subscribed and percentage of holdings to
total of each shareholder.
5. A list of individual stockholders
in the applicant bank with equity
investment in other financial institutions,
indicating the type and number of shares
held in the other institution and the
corresponding percentage of holdings to
total of each shareholder.
B. Organization and Management
1. The names of the members of the
board of directors and principal officers of the
applicant bank.
2. The proposed organization chart of
the department within the applicant bank
Appendix 1 - Page 2
that will be responsible for the investment

banking functions, indicating the
designation of officers and other key
positions and the names of persons
proposed for appointment to those
positions.
C. Financial Capability and Previous
Years Operation. A brief discussion of the
applicant banks general financial condition,
operating performance, solvency and
liquidity position, supported by appropriate
financial ratios as seen from the latest
condensed balance sheet and income
statement. The discussion shall include
major banking activities, exposure
concentrations (in terms of top borrowers
and major industries), equity and credit
exposures in subsidiaries and affiliates, and
other significant information.
D. Corporate Strategy
1. The statement of corporate strategy
of the proposed UB, its immediate and longterm goals and objectives.
2. The lending program and special
policies lined up for the first five (5) years
including details on guidelines and
standards to be established on exposure
limits, portfolio diversification, collateral
requirements, geographical expansion,
assistance to pioneer and priority areas of
economic activities and relationship with
clients.
3. The investment policies and
programs to be implemented within the first
five (5) years of operation including broad
categories of undertakings in which the
proposed UB will invest, the portfolio mix
to be observed, the extent of control over
subscribed capital stock and voting stock
to be exercised in the financial allied
undertakings, quasi-banks and non-financial
allied undertakings.
4. The fund generation program for the
first five (5) years of operation to support
the expansion in loans and investments.
APP. 1
05.12.31
5. The quarterly underwriting program

for one (1) year stating industry of issuer,
the volume of underwriting business
classified into equity and debt, public
offering and private placement and other
information.
E. Financial Projections
1. The detailed statement of
underlying assumptions made in projecting
the financial statements and ratios.
2. The detailed projected statement of
income and expenses for the first five (5)
years of operation.
3. The projected operating ratios for
the first five (5) years of operation.
4. The actual statement of condition
of applicant bank at month-end before filing
of application and the projected statement
of condition as of the first five (5) years-end
of operation.
5. The projected balance sheet ratios
as of the first five (5) years-end of operation.
6. The projected funds flow for the first
five (5) years of operation.
III. PUBLIC OFFERING AND LISTING
OF BANK SHARES
A domestic bank applying for a UB
authority shall cause the public offering and
listing of its shares under the following
terms and conditions:
1. The shares to be publicly offered
may be voting or non-voting shares and
may come from the banks existing
authorized and unsubscribed stock or
from an increase in its authorized capital
stock: Provided, That in the case of an
applicant bank whose authorized capital
has been fully subscribed and paid-up and
that bank does not intend to increase its
authorized capital stock, the shares to be
publicly offered may come from existing
stockholders who may be willing to
divest themselves of such holdings.
2. The offering bank shall accept offers

to buy or invest in its publicly offered shares
of stock from new investors or from existing
stockholders whose stockholdings, together
with those of their relatives within the fourth
degree of consanguinity or affinity or of firms,
partnerships, corporations or associations, at
least a majority of the voting stock of which
are owned by such stockholders, constitute
less than twenty percent (20%) of the banks
subscribed capital stock. The banks articles
of incorporation shall have an explicit
provision stating that existing stockholders
who are disqualified under these rules shall
waive their pre-emptive rights to the additional
shares to be publicly offered unless the articles
of incorporation already provide that such
stockholders do not have pre-emptive rights.
The waiver may be limited to three (3) months
after which period the disqualified
stockholders may purchase shares from the
unsubscribed/unsold publicly offered shares.
The publicly offered shares of stock shall
be sold to at least twenty-one (21) qualified
buyers or group of buyers but the total shares
of stock which may be purchased by any
qualified buyer or group of buyers shall not
exceed ten percent (10%) of the publicly
offered shares of stock.
Buyers of publicly offered shares shall in
no case exceed the ownership ceilings under
Sections 11, 12, and 13 of R.A. No. 8791
and Section 2 of R.A. No. 7721.
3. The bank shall fix the price of the
shares of stock. In the case of subscribed
and fully paid-up shares which shareholders
are willing to divest, the price shall be set
by agreement of the parties.
4. The offering bank shall submit to the
department for evaluation, a prospectus
containing the following minimum
information:
(a) Name and address of issuing bank;
(b) A brief history of the banks
operations and a description of its premises
and facilities;
Appendix 1 - Page 3
APP. 1
05.12.31
(c) The current authorized capital stock

and the stock offered for subscription/sale
to the public indicating the classes of stock
and the amount for each class presented in
tabular form;
(d) Features of the offer:
(i) The number and amount of each
class of stock offered;
(ii) The per share and aggregate
offering price of each class of stock and the
per share and aggregate proceeds to be
received by the bank;
(iii) The proposed means of distribution;
(iv) Specific terms of the offer
(minimum subscription, payment terms,
etc.); and
(v) The expiry date of the offer.
(e) Audited statements of condition
(format similar to published statement of
condition) and earnings and expenses for
the last three (3) calendar years; Provided,
That banks in operation for less than three
(3) years shall disclose their audited financial
statements from the start of operations to
the year last ended;
(f) Names and addresses of all
directors and principal officers and their
respective designations, and stock options
and other similar plans for directors and
officers; and
(g) A list of stockholders owning ten
percent (10%) or more of the subscribed
capital stock, the number of shares held by
each, whether voting or non-voting, and the
par value of such shares. The list shall
likewise show the ratio of subscribed capital
Appendix 1 - Page 4
stock held by directors and principal

officers to the authorized capital stock; the
ratio of the publicly offered shares of stock
to the authorized capital stock, the
citizenship and family groupings of
stockholders with their corresponding
percentage of ownership.
5. The bank shall cause the
publication of the public offering in a
newspaper of general circulation at least
twice within a period of one (1) month
prior to the offering.
6. The provisions of the guidelines on
public offering shall be deemed
substantially complied with if the bank
causes its shares of stock to be publicly
offered in the manner and under the
conditions herein prescribed for a period
of three (3) months. In cases where there
are no buyers willing and/or qualified to
purchase or invest in the shares of stock
being publicly offered within said period,
the bank, after written notice to the
department of the BSP, may sell said shares
to its existing stockholders, subject to the
limitations on equity holdings prescribed
by law and regulations.
The requirements of public offering
and listing shall be complied with by all
applicant banks including those that are
able to meet the prescribed minimum
capital requirement on their own or
through merger/consolidation with other
banks
or
non-bank
financial
intermediaries.
APP. 2
05.12.31
PRESCRIBED APPLICATION FORMS FOR THE ENTRY OF

FOREIGN BANKS
A.
Sample Application for Authority to Invest in an Existing Domestic Bank in the

Philippines
___________________________________
Name of Applicant
___________________________________
Address of Head Office
__________________________________
Cable Address
___________________________________
Telefax/Fax Number
Date
The Governor
Manila, Philippines
Sir:
We hereby apply for authority to invest in _______ percent (___%) of the voting
stock of __________________________________, an existing domestic bank in the Philippines.
In support of this application, we submit the following documents:
1.
A copy of the Memorandum of Understanding between the bank and the investee
domestic bank;
2.
A copy of the Board Resolution authorizing the bank to invest in such domestic bank,
and designating the person who will represent the bank in connection therewith;
3.
Historical background of the bank, as follows:

(a) Date and place of incorporation;
(b) Number of branches and agencies in the home country;
(c) List of foreign branches, agencies, other offices, parent (if any), subsidiaries and
affiliates, and their location and line of business (if different from banking);
(d) Range of banking services offered; and
(e) Financial and commercial relationship with the Philippine Government, local
banks, business entities and residents, past or present;
Appendix 2 - Page 1
APP. 2
05.12.31
4.
A copy each of the latest amended articles of incorporation and by-laws;
5.
List of the banks directors and their citizenship;
6.
List of principal officers of the head office;
7.
Number of stockholders and list of stockholders owning more than fifteen percent
(15%) of the voting stock, if any;
8.
A copy each of the banks audited financial statements (i.e., statement of condition
and statement of income and expenses) for the last two (2) years prior to the filing of
application;
9.
A copy of the banks annual report to the stockholders for the year immediately
preceding the date of filing of application;
10.
A certification from the banks home country supervisory authority that:

(a) The banks home country supervisory authority has no objection to the banks
investment in an existing domestic bank in the Philippines;
(b) Adequate information on the bank and its subsidiaries will be provided to the
Bangko Sentral ng Pilipinas to the extent allowed under existing laws; and
(c) The Philippine banks may likewise be allowed to establish subsidiaries and/or
branches in the banks home country, subject to compliance with the rules and
regulations governing admission which are applicable to all foreign banks;
11.
If the investment will constitute majority ownership or give the investor bank control
of management, business plan supported by projected financial statements for one
(1) year, and how such business plan can accomplish the policy objectives of R.A.
No. 7721; and
12.
Undertaking to fully share technology, e.g. services/products and facilities such as

computer hardware/software.
Should this application be approved, the following additional documents shall be

submitted:
1.
Bio-data sheet for each of the new directors and new principal officers;
2.
Evidence of citizenship for each of the new directors and new principal officers in
the investee domestic bank, such as:
(a) Passport;
(b) Birth certificate; or
(c) Naturalization certificate;
3.
National Bureau of Investigation (NBI) and Bureau of Internal Revenue (BIR) clearances
or similar police and tax clearances for each of the new directors and new principal
officers who are Filipino citizens or residents of the Philippines;
Appendix 2 - Page 2
APP. 2
05.12.31
4.
Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to

obtain information from other sources in order to establish the authenticity of
information/representations submitted; and
5.
Other relevant information as the Bangko Sentral ng Pilipinas may require.

Very truly yours,
__________________________
Signature of Authorized Officer
Over Printed Name
__________________________
Designation
Attachments
B. Sample Application for Authority to Establish a Subsidiary in the Philippines
____________________________
Name of Applicant
____________________________
____________________________
Cable Address
______________________________
Telex/Fax Number
__________________
Date
The Governor
Manila, Philippines
Sir:
We hereby apply for authority to establish a ________ percent ( ____ %)-owned
(Specify the type of bank) banking subsidiary in the Philippines.
In support of this application, we submit the following information/documents:
1.
A copy of the board resolution authorizing the bank to establish such subsidiary,
and designating the person who will represent the bank in connection therewith;
Appendix 2 - Page 3
APP. 2
05.12.31
2.

(b) Number of domestic branches and agencies in the home country;
(c) List of foreign branches, agencies, other offices, subsidiaries and affiliates, and
their location and line of business (if different from banking);
(e) Financial and commercial relationship with the Philippine Government, local
banks, business entities and residents, past or present;
3.
A copy each of the banks latest amended articles of incorporation and by-laws;
4.
List of the banks directors and their citizenship;
5.
6.
A certification from the banks Corporate Secretary that the bank or its holding
company has at least fifty (50) stockholders and that no stockholder owns more than
fifteen percent (15%) of the capital stock of the bank or its holding company, or that
more than fifty percent (50%) of the capital stock of said bank or its holding company
is owned by the government;
7.
A certification from the banks home country stock exchange authorized by the
government that the bank is listed therein;
8.
A copy each of the audited financial statements (i.e., statement of condition and
statement of income and expenses) for the last two (2) years prior to the filing of
application of the applicant bank, and other corporate stockholders, if any, in the
proposed subsidiary;
9.
Statement of Assets and Liabilities of each of the non-corporate subscribers/

stockholders* as of a date not earlier than ninety (90) days prior to the filing of
application, duly certified by a Certified Public Accountant or sworn to by the
subscriber/stockholder* himself, with supporting schedules;
10.
A copy of the banks annual report to the stockholders for the year immediately
preceding the date of filing of application;
11.
Certified photo copies of income tax returns of each of the subscribers/ stockholders*
for the last two (2) calendar/fiscal years;
12.
A certification from the banks home country supervisory authority:

(a) That the banks home country supervisory authority has no objection to the banks
establishment of a subsidiary in the Philippines;
(b) That adequate information on the bank and its subsidiaries will be provided to
the Bangko Sentral ng Pilipinas to the extent allowed under existing laws;
* Owning at least 2% of the subscribed capital stock

Appendix 2 - Page 4
APP. 2
05.12.31
(c) That the Philippine banks may likewise be allowed to establish subsidiaries and/
or branches in the banks home country, subject to compliance with the rules and
regulations governing admission which are applicable to all foreign banks;
(d) As to the ranking of the applicant bank in the home country on the basis of net
worth as well as on the basis of on-book total assets of the head office and all
branches, excluding subsidiaries and affiliates; and
(e) That the bank complies with the capital requirements as prescribed by the laws
and regulations of the home country;
13.
Business plan supported by projected financial statements for one (1) year, and how
such business plan can accomplish the policy objectives of R.A. No. 7721;
14.
or similar police or tax clearance for each of the non-corporate subscribers/
*
stockholders and proposed directors who are Filipino citizens or residents of the
Philippines;
15.

computer hardware/software;
16.
Agreement to Organize a
(specify type of bank)
prescribed format in Item C below); and
17.
Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to

obtain information from other sources in order to establish the authenticity of
information/representations submitted.
Bank in the Philippines (See
Should this application be approved, we shall submit the articles of incorporation of

the proposed subsidiary together with an application for authority to register the same with
the Securities and Exchange Commission (SEC) the Articles of Incorporation (See prescribed
format in Item D below).
Very truly yours,
___________________________
Over Printed Name
_________________________
Designation
Attachments
* Owning at least 2% of the subscribed capital stock
Appendix 2 - Page 5
APP. 2
05.12.31
C. Sample Agreement to Organize a Subsidiary Bank

AGREEMENT TO ORGANIZE A
(Specify type of Bank) BANK
An agreement, made this _____ day of _________________, 19__ by and among the
following:
Name
Residence
Citizenship
Whereas, the parties hereto are desirous of forming a corporation under the following
terms:
1. That a corporation to be known as _____________________ shall forthwith be
formed for the purpose of carrying on the business of a _____________________ bank as
provided for by law;
2. That the place where the principal office of the corporation is to be established or
located is in _________________________;
3. That the number of directors of the said corporation shall be _________________
and that the names, residences and citizenship of the proposed directors of the corporation
are, as follows:
Name
Residence
Citizenship
4. That the capital stock of said corporation is _______________________ pesos

(___________) Philippine Currency, and said capital shall be divided into (number) preferred
shares with a par value of ________________ each share:
(If there are preferred shares, their preferences should be described.)
5. That the amount of said capital stock which is proposed to be subscribed initially
by the stockholders is _____________________ pesos (P__________) and the amount proposed
to be paid thereof upon organization is ___________ _____________________ pesos
(P__________), as follows:
Appendix 2 - Page 6
APP. 2
05.12.31
Name
Residence
Citizenship
Amount to be
Subscribed
Paid-In
Total
6. That ______________________, one of the organizers, is hereby authorized to
sign the application to the Bangko Sentral ng Pilipinas for the issuance of the certificate of
authority to establish a ___________________ bank.
IN WITNESS WHEREOF, we have hereunto set our hands this _______ day of
______________, 20___ in the ______________________________, Philippines.
SIGNATURES
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
_______________________________
__________________________________
__________________________________
__________________________________
__________________________________
__________________________________
__________________________________
__________________________________
__________________________________
SIGNED IN THE PRESENCE OF:

_________________________________
Witness
___________________________________
Witness
NOTARIAL ACKNOWLEDGMENT
Appendix 2 - Page 7
APP. 2
05.12.31
D. Sample Letter to BSP Submitting Banks Articles of Incorporation for Issuance of the
Certificate of Authority for SEC Registration
__________________
Date
The Governor
Manila, Philippines
Sir:
I have the honor to submit herewith the Articles of Incorporation of
_______________________________.
By way of supporting documents, I am also submitting the following:
1.
Names of the proposed principal officers with their proposed designations and duties;
2.
Bio-data sheet for each of the incorporators, proposed directors and principal officers;
3.
Evidence that at least 40% of the voting stock of the corporation is owned by citizens
of the Philippines;
4.
Evidence of citizenship for each of the directors and principal officers in the banking
subsidiary, such as:
(a) Passport;
(b) Birth certificate; or
(c) Naturalization certificate;
5.
or similar police or tax clearance for each of the proposed principal officers who are
Filipino citizens or residents of the Philippines; and
6.
Location and banking premises, as follows:

(a) Proposed location; and
(b) Bank premises (indicate if purchased, built, or leased).
If you find the Articles of Incorporation in order, we are requesting for the issuance of
the necessary certificate of authority for its registration with the Securities and Exchange
Commission.
Very truly yours,
_______________________________
Authorized Representative
of the Organizers
Attachments
Appendix 2 - Page 8
APP. 2
05.12.31
E. Sample Application for Authority to Establish Branch/es in the Philippines

________________________________
Name of Applicant
________________________________
________________________________
Cable Address
________________________________
Telex/Fax Number
__________________
Date
The Governor
Manila, Philippines
Sir:
We hereby apply for authority to establish branch/es with full banking authority in
the Philippines.
In support of this application, we submit the following information/documents:
1.
A copy of the board resolution authorizing the bank to establish such branch/es in the
Philippines, and designating the person who will represent the bank in connection
therewith;
2.

(b) Number of branches and agencies in the home country;
(c) List of foreign branches, agencies, other offices, subsidiaries and affiliates,
and their location and line of business (if different from banking);
(e) Financial and commercial relationship with the Philippine Government,
local banks, business entities and residents, past or present;
3.
A copy each of the latest amended articles of incorporation and by-laws;
4.
List of directors and their citizenship;
5.
Appendix 2 - Page 9
APP. 2
05.12.31
6.
A certification from the banks Corporate Secretary that the bank or its holding company
has at least fifty (50) stockholders and that no stockholder owns more than fifteen
percent (15%) of the capital stock of the bank or its holding company, or that more
than fifty percent (50%) of the capital stock of said bank or its holding company is
owned by the government;
7.
A certification from the banks home country stock exchange authorized by the
government that the bank is listed therein;
8.
A copy each of the banks audited financial statements (i.e., statement of condition and
statement of income and expenses) for the last two (2) years prior to the filing of
application;
9.
A copy of the banks annual report to the stockholders for the year immediately preceding
the date of filing of application;
10.
A certification from the banks home country supervisory authority;
11.
Business plan supported by projected financial statements for one (1) year, and how
such business plan can accomplish the policy objectives of R.A. No. 7721;
12.

computer hardware/software; and
13.
Authorization for the Bangko Sentral ng Pilipinas to conduct investigation and to obtain
information from other sources in order to establish the authenticity of the information/
representations submitted.
Should this application be approved, we undertake to submit another application for the
issuance of the necessary certificate of authority to obtain license from the Securities and
Exchange Commission (SEC) to operate branch/es in the Philippines (See prescribed format
in Item F below).
Very truly yours,
_________________________
Over Printed Name
_________________________
Designation
Attachments
Appendix 2 - Page 10
APP. 2
05.12.31
F. Sample Request for BSP Authority to Obtain License from SEC to Establish Branches
of Foreign Banks
________________
Date
The Governor
Manila, Philippines
S I r:
I have the honor to request for a certificate of authority to obtain license from the
Securities and Exchange Commission (SEC) for the establishment of branch/es in the
Philippines.
In support of this request, I am pleased to submit the following papers/documents
and other information:
1.
Names of the proposed principal officers with their proposed designation and duties;
2.
Bo-data sheet for each of the proposed principal officers;
3.
Evidence of citizenship for each of the proposed principal officers, such as:
(a)
Passport;
(b)
Birth certificate; or
(c)
Naturalization certificate;
4.
or similar police or tax clearances for each of the proposed principal officers who are
Filipino citizens or residents of the Philippines;
5.
Location and banking premises, as follows:

(a) Proposed location; and
(b) Bank premises (indicate if purchased, built or leased); and
6. Head office guarantee (See suggested format in Item G below).

Very truly yours,
_________________________
Name of Bank
By:
_________________________
Over Printed Name
_________________________
Designation
Attachments
APP. 2
05.12.31
G. Sample Guarantee Undertaking to Establish Branches of Foreign Banks

GUARANTEE
KNOW ALL MEN BY THESE PRESENTS:
WHEREAS, under the provisions of Republic Acts No. 8791, as amended, and No.
7721 of the Republic of the Philippines, the licensing, supervision and regulation of banks,
both foreign and domestic, are vested with the Bangko Sentral ng Pilipinas;
WHEREAS, under said Republic Act No. 7721, entitled: An Act Liberalizing the
Entry and Scope of Operations of Foreign Banks in the Philippines and for Other Purposes,
Name of Bank (hereinafter called Guarantor) has been authorized to operate a branch or
branches in the Philippines.
WHEREAS, under the provisions of Republic Act No. 7721, banks organized under
laws other than those of the Republic of the Philippines shall guarantee the full payment of
all liabilities of its branch or branches in the Philippines for the purpose of providing effective
protection and security to the interests of the depositors and other creditors of said branch or
branches; and
WHEREAS, Guarantor is willing, desirous and ready at any time to give such full
guarantee as well as to comply with whatever conditions required in said Republic Act No.
7721.
NOW, THEREFORE, for the purpose above mentioned, Guarantor hereby agrees
that in the event any branch of Guarantor located in the territory of the Republic of the
Philippines should fail to promptly pay any lawful debt, claim or liability of any kind or
character, due and payable under the laws of the Republic of the Philippines and pursuant to
the terms of said debt, claim or liability, then Guarantor upon the demand of the Bangko
Sentral shall promptly pay said debt, claim or liability to the person or persons entitled
thereto under the laws of the Republic of the Philippines. Any such debt, claim or liability,
not so promptly paid, shall bear interest at a rate per annum as may be prescribed by the
Monetary Board. Said debts, claims or liabilities, interest thereon and any cost or expenses
incidental to the collection thereof, shall be paid in the currency in which the obligations are
expressed, or in which the costs or expenses were incurred.
The obligation of Guarantor upon default of any of its branches located in the territory
of the Republic of the Philippines is primary, direct and immediate and not contingent on
any remedy or recourse upon any asset, property or right which its branch or branches
within the territory of the Republic of the Philippines may have, in such a way that any
depositor or creditor of its branch or branches in the Philippines may take, at any time, any
action on this Guaranty whether or not said depositor or creditor has simultaneously taken
or will thereafter take, any direct or indirect action under the laws of the Philippines against
said branch or branches, or against any assets, property or rights thereof: Provided, however,
That Guarantor shall have the right to set-off should it have any claim or claims against any
depositor or creditor taking any action by virtue of the provisions of its Guarantee.
APP. 2
05.12.31
The right on this Guarantee is independent of and separate from whatever right, security
or action which any depositor or creditor of said branch or branches in the Philippines may
have, take or pursue to protect his interest, and whatever action or measure the Bangko
Sentral ng Pilipinas may adopt in the exercise of its supervisory and regulatory powers allowed
and provided for in said Republic Acts No. 8791, as amended, and No. 7721 of the Republic
of the Philippines, such as requiring Guarantor to assign to its Philippine Branch or Branches
an amount of capital sufficient to meet the minimum capital required in said Republic Act
No. 7721, or any measure it may be authorized to take under the provisions of said Republic
Act No. 8791, as amended, in the case of capital deficiencies; in such case or cases, the
liability created hereunder shall not in the least be minimized or affected, it being the purpose
of this undertaking that Guarantor shall at all times be responsible and obligated for any such
obligations or liabilities of its branch or branches in the Philippines, and to the extent that the
same has been fully paid or satisfied only will said Guarantor be relieved from its primary
obligations hereunder.
No technicality in the law or in the language of this Guarantee or in any contract,
agreement or security, held by or with said branch or branches in the Philippines, shall
defeat the nature and purpose of this Guarantee as a primary and direct obligation of Guarantor
to the end that the interest of the depositors and creditors of the said branch or branches in
the Philippines may be fully protected and satisfied in accordance with Section 5 of Republic
Act No. 7721. Guarantor hereby acknowledges having full knowledge of said Republic Act
No. 7721 in accordance with which this primary and principal obligation is given.
Guarantor hereby recognizes the jurisdiction of Philippine courts and hereby authorizes
its branch office and/or offices in the Philippines to accept summons, processes and notices
from the Philippine courts.
The Guarantee shall be governed by Philippine law.
IN WITNESS WHEREOF, this Guarantee has been executed by Guarantor acting by
and through its Officers thereunto duly authorized this _____ day of _____________, 19__.
APP. 3
05.12.31
GUIDELINES FOR THE ISSUANCE OF A UNIVERSAL

BANKING AUTHORITY FOR BRANCHES OF FOREIGN BANKS
I. QUALIFICATION AND
DOCUMENTATION REQUIREMENTS
A. Minimum Capital Required. A branch
of a foreign bank applying for a universal
banking (UB) authority shall have capital
equivalent to at least the amount prescribed
for UB s under Subsecs. X106.1 and
X106.2.
The capital of a Philippine branch of a
foreign bank which is authorized to operate
as a UB shall consist of its permanently
assigned capital plus Net Due to account:
Provided, That at no time shall the aggregate
of said accounts fall below the amount
prescribed under Subsec. X106.1: Provided
further, That the amount of the Net Due to
which may be added to permanently
assigned capital shall not exceed the
equivalent of three (3) times the amount of
the permanently assigned capital.
The capital as described in the
immediately preceding paragraph shall be
net of (a) such unbooked valuation reserves
and other capital adjustments as may be
required by the BSP; (b) total outstanding
unsecured credit accommodations, both
direct and indirect, to directors, officers,
stockholders, and their related interests
(DOSRI); (c) deferred income tax; (d) equity
investment of a bank in another bank or
enterprise whether foreign or domestic, if
the other bank or enterprise has a reciprocal
equity investment in the investing bank, in
which case, the investment of the bank or
the reciprocal investment of the other
bank or enterprises, whichever is lower;
and (e) appraisal increment reserves
(revaluation surplus) arising from an
appreciation or an increase in the book
value of bank assets.
The list of direct and indirect loans to

DOSRI which are unsecured, the original
amount of the loan and date granted and the

outstanding balance classified into current
and past due shall be submitted by the
applicant banks to the BSP.
B. Financial Resources, Past Performance and
General Compliance with Banking Laws and
Regulations. Applicant bank shall not have
incurred deficiency in the required capital-torisk assets ratio (10%) under Section 34 of R.A.
No. 8791, as amended, and Subsecs. X121.5
and X121.6, for the year preceding the filing
of application. It shall have sufficient valuation
reserves to cover estimated losses.
Applicant bank shall not have incurred
net deficiencies in its reserves against deposit
liabilities and/or deposit substitute liabilities
for the three (3)-month period immediately
preceding the filing of the application. In
addition, such ratios as primary reserves to
deposit liabilities and primary and secondary
reserves to deposit and demand liabilities
shall show that applicant bank is in a liquid
position.
Applicant bank has substantially complied
with banking laws or orders, instructions or
regulations issued by the Monetary Board or
orders, instructions or rulings by the Governor.
Major/important exceptions and findings by
BSP examiners have been corrected or
satisfactorily explained.
C. Knowledge, Competence, Experience and
Integrity of Officers and Key Personnel. The
applicant shall indicate in the application
that officers and key personnel having the
appropriate training and/or experience in
investment banking and related functions are
available/obtainable by the bank.
Appendix 3 - Page 1
APP. 3
05.12.31
An updated bio-data shall be submitted

by each of the officers and key personnel
who will handle investment banking and
related functions.
II. PROJECT FEASIBILITY STUDY
The project feasibility study to be
submitted by the applicant bank shall
include, in addition to the regular content
of such study, the following information in
the format prescribed.
A. Organization and Management
1. The proposed organization
(position) chart of department within the
applicant bank which shall be responsible
for the investment banking functions,
indicating for each position the name of the
personnel proposed for appointment.
2. Bio-data that should be prepared for
each of the proposed key personnel in the
investment banking department.
B. Corporate Strategy
1. The statement of corporate strategy
of the UB and the immediate and long-term
goals and objectives.
2. The lending program and special
policies lined up for the first five (5) years
including details on guidelines and standards
to be established on exposure limits, portfolio
diversification, collateral requirements,
geographical expansion, assistance to pioneer
and priority areas of economic activities and
relationship with clients.
3. Investment policies and program to
be implemented within the first five (5) years
of operation including the broad categories
of undertakings in which the UB may invest,
Appendix 3 - Page 2
the portfolio mix to be observed, the extent

of control over subscribed capital stock and
voting stock to be exercised in financial
allied undertakings, quasi-banks and nonfinancial allied undertakings.
4. Local branches of foreign banks may
invest in the equity of financial as well as
non-financial allied undertakings and nonallied undertakings wherein locally
incorporated commercial banks with UB
authority are allowed to invest. However,
the branches equity investments shall be
subject to equity ceilings set in pertinent
laws.
5. Fund generation program for the first
five (5) years of operation to support the
expansion in loans and investments.
6. Quarterly underwriting program for
one (1) year stating industry of issuer, the
volume of underwriting business classified
into equity and debt, public offering and
private placement and other information.
C. Financial Projections
1. The detailed statements of the
underlying assumptions made in projecting
the financial statements and ratios.
2. The detailed projected statement of
income and expenses for the first five (5)
years of operation.
3. The projected operating ratios for the
first five (5) years of operation.
4. The actual statement of condition of
UB at month-end before filing of application
and the projected statement of condition as
of the first five (5) years-end of operation.
5. The projected balance sheet ratios
as of the first five (5) years of operation.
6. The projected funds flow for the first
five (5) years of operation.
APP. 4
05.12.31
FORMAT OF AFFIDAVIT ON TRANSFER OF STOCKS

[Appendix to Subsec. X126.2b (3)]
REPUBLIC OF THE PHILIPPINES)
_____________________________) S.S.
AFFIDAVIT
I,_________________________________, also known as ________________________with
business address at ______________________, after having been duly sworn to in accordance with
law depose and state that:
1. I am the transferee of (state quantity) shares representing ____ percent of voting
stocks of (state name of bank), hereinafter to be referred to as Bank, by virtue of (state
instrument of transfer) dated _________________.
2. In acquiring equity in the Bank, I acted with full awareness and understanding
that the Bank is a duly organized domestic banking corporation, exercising and enjoying a
right, franchise and privilege to engage in _________ banking business, decreed by law to
be a nationalized industry, wherein at least __________ of the voting stock should be owned
by citizens of the Philippines and that there exist prohibitions under the law against the
holding by a corporation or any person of voting stocks in excess of _______ of the voting
stock of the Bank.
3. Consonant with the policy of the Government as provided for in Commonwealth
Act No. 108, as amended, otherwise known as the Anti-Dummy Law, and Republic Act No.
8791, otherwise known as the General Banking Law of 2000, I hereby declare as follows:
a. The (state instrument of transfer) was not simulated to evade the provisions of
the Constitution and Commonwealth Act. No. 108 or the provisions of Republic
Act No. 8791 particularly Sections 11, 12 and 13 imposing maximum equity
holdings by any natural or juridical persons;
b. That I acquired said shares of stocks for valuable consideration from my own
funds;
c. As such transferee, I have title over said shares of stock; and
d. That I undertake to dispose of the shares of stocks I may have acquired in excess
of the prescribed ceilings.
4. This Affidavit is executed for the purpose of stating under oath my bona fide title
over the shares of voting stocks of the Bank; that in acquiring title over said shares I gave
valuable consideration; and that I shall comply with the requirements of all laws, rules and
regulations with respect to my conduct as stockholder of the Bank.
Appendix 4 - Page 1
APP. 4
05.12.31
IN WITNESS WHEREOF, I hereby affix my signature this _____________ day of

__________________, 20___ at _______________.
________________________
Affiant
SUBSCRIBED and sworn to before me this ______ day of _______ 20__, affiant
exhibiting to me his Community Tax Certificate No. _________, issued at ________ on
______________ 20__.
Notary Public
Doc. No.
Page No.
Book No.
Series of
Appendix 4 - Page 2
APP. 5
08.12.31
STANDARD PRE-QUALIFICATION REQUIREMENTS

FOR THE GRANT OF BANKING AUTHORITIES
(Appendix to Subsecs. Indicated Below)
A. Banks Applying For Authority to
1. Establish additional branches of foreign banks (Subsec. X153.2);
2. Establish offices abroad (Subsec. X154.2);
3. Accept or create demand deposits (Subsec. X201.1);
4. Accept NOW accounts (Subsec. X223.1); and
5. Issue NCTDs (Subsec. X233.1);
6. Accept government deposits (Subsec. X240.3);
7. Engage in quasi-banking operations (Subsec. X234.2);
8. Operate an EFCDU/FCDU (Subsec. X501.2); and
9. Engage in derivatives transactions (Subsec. X602.1).
B. Standard Pre-Qualification
Requirements
Banking Authorities
To establish offices
abroad;
To establish additional
To accept demand, NOW
branches of foreign bank
NCTDs and
To engage in quasibanking, EFCDU/FCDU
and derivatives transactions
1. The bank has complied, during the

period indicated immediately
preceding the date of application,
with the following:
a. Net worth to risk assets ratio;
90 days
60 days
b. Ceilings on credit accommodation

to DOSRI; and
90 days
continuing
c. Liquidity floor on government deposits; 90 days
continuing
Appendix 5 - Page 1
APP. 5
08.12.31
2. The bank has not incurred net weekly reserve

deficiencies during the period indicated immediately
preceding the date of application;
12 weeks
8 weeks
3. The applicant bank has generally complied with

banking laws, rules and regulations, orders or
instructions of the Monetary Board and/or BSP
Management;
4. The banks past due loans do not exceed twenty

percent (20%) of its total loan portfolio as of the
date of application;
a. single borrowers loan limit; and
b. total investment in real estate and improvements

thereon, including bank equipment, does not
exceed fifty percent (50%) of net worth as of
6. The banks accounting records, systems, procedures

and internal control systems are satisfactorily
maintained;
7. The bank does not have float items outstanding

for more than sixty (60) calendar days in the Due
From/To Head Office/Branches/Offices accounts
and the Due From Bangko Sentral account exceeding
one percent (1%) of the total resources as of
end of preceding month;
8. The bank has no past due obligation with the

BSP or with any financial institution as of date of
application;
9. The banks facilities pertinent to the authority applied

for are adequate;
10. The officers who will be in-charge of the operation

relating to the authority applied for have actual
experience of at least two (2) years in another bank
as in-charge (or at least as assistant-in-charge) of the
same operation;
Appendix 5 - Page 2
5. The bank has corrected as of date of application

the major violations noted in its latest examination
particularly relating to
APP. 5
08.12.31
11. The bank personnel who will handle the operation

relating to the authority applied for, have attended
appropriate seminars, workshops or on-the-job
training or have experience of at least six (6) months;
12. The bank has complied with the mandatory allocation

of credit resources to small and medium enterprises
for two (2) quarters immediately preceding the
13. The bank has not been found engaging in unsafe

and unsound banking practices during the last six (6)
months immediately preceding the date of application
where applicable;
n/a
14. The bank has complied with the twenty percent

(20%) aggregate limit on real estate loans as of end
of preceding quarter (for UBs/KBs only);
n/a
15. The bank has set up the prescribed allowances for

probable losses, both general and specific, as of
n/a
16. The bank is a member of the Philippine Deposit

Insurance Corporation in good standing as of date of
application (for TBs/RBs/Coop Banks only)
n/a
a - applicable
n/a - not applicable
Appendix 5 - Page 3
APP. 5a
07.12.31
PREREQUISITES FOR THE GRANT OF

AUTHORITY TO OPERATE FCDU
A. Thrift Banks
A TB applying for authority to operate
an FCDU shall comply with the following
requirements:
a. The banks operation during the
b. The bank is well capitalized with
risk-based CAR not lower than twelve
application;
c. The officer who will be in-charge
of FCDU operations shall either:
(1) have at least one (1) year of actual
experience in another bank as in-charge
or assistant in-charge of the same
operations; or
(2) have attended a specialized training
course on FCDU transactions or operations
conducted by the BSP Institute or an
institution or bank duly accredited by the
BSP;
d. The bank has not incurred net
weekly reserve deficiencies within eight
(8) weeks immediately preceding the date
of application;
e. The bank has generally complied
with banking laws, rules and regulations,
Board and/or BSP Management in the last
two (2) preceding examinations prior to the
date of application, more particularly on:

by the BSP;
(3) the
ceilings
on
credit
(5) single borrowers loan limit; and
other fixed assets;
f. The bank maintains adequate
provisions
for
probable
losses
commensurate to the quality of its asset
portfolio but not lower than the required
valuation reserves as determined by the
BSP;
g. The bank has no float item
h. The bank has no past due
obligation with the BSP or with any
government FI;
i. The bank has established a risk
reporting system;
j. The bank has a CAMELS composite
rating of at least 3 in the last regular
examination with Management rating not
lower than 3; and
Appendix 5a - Page 1
APP. 5a
07.12.31
k. The bank is a member of the PDIC

in good standing.
B. Rural/Cooperative Banks
An RB/Coop Bank applying for
authority to operate an FCDU must comply
with the following requirements:
a. Minimum capital under Subsection
X151.3 or P20.0 million, whichever is higher;
b. Risk-based CAR at the time of filing
the application of at least twelve percent
(12%);
c. CAMELS composite rating in the latest
examination of at least 3, with Management
component score not lower than 3; and
d. No outstanding major supervisory
concerns on safety and soundness from last
examination, such as, but not limited to:
(1). Unbooked valuation reserves

(2). Inadequate regular and liquidity reserves 12 weeks
on deposits including government deposits
and deposit substitutes
3 months
(3). DOSRI loans in excess of ceilings
(4). Poor asset quality
(5). Violation of single borrowers loan
limit and investment limits.
(6). Past due obligation with the BSP or
with any FI
(7). Unsafe and unsound banking 6 months
practices
(8). Inadequate accounting records,
systems, procedures and internal controls
(9). Corporate governance
(10). Compliance with banking laws,
rules and regulations, orders or
instructions of the Monetary Board and/
or BSP Management
(11). Membership with the PDIC
(As amended by Circular Nos. 582 dated 17 September 2007 and
522 dated 23 March 2006)
APP. 5b
05.12.31
QUALIFICATION REQUIREMENTS FOR A BANK/NBFI APPLYING FOR

ACCREDITATION TO ACT AS TRUSTEE ON ANY MORTGAGE OR
BOND ISSUED BY ANY MUNICIPALITY, GOVERNMENT-OWNED OR
-CONTROLLED CORPORATION, OR ANY BODY POLITIC
A bank/NBFI applying for accreditation
to act as trustee on any mortgage or bond
issued by any municipality, governmentowned or controlled corporation, or any
body politic must comply with the
a. It must be a bank or NBFI under
BSP supervision;
b. It must have a license to engage in
trust and other fiduciary business;
c. It must have complied with the
minimum capital accounts required under
existing regulations, as follows:
UBs and KBs
The amount required under

existing regulations or such
amount as may be required by
the Monetary Board in the
future
Branches of
The amount required under
Foreign Banks existing regulations
Thrift Banks
P650.0 million or such amounts

as may be required by the Monetary
Board in the future
NBFIs
Adjusted capital of at least

P300.0 million or such amounts
as may be required by the Monetary
Board in the future.
d. Its risk-based capital adequacy ratio

is not lower than twelve percent (12%) at
the time of filing the application;
e. The articles of incorporation or
governing charter of the institution shall
include among its powers or purposes,
acting as trustee or administering any trust
or holding property in trust or on deposit
for the use, or in behalf of others;
f. The by-laws of the institution shall

following:
business of the institution;
(2) The creation of a trust committee,
the appointment of a trust officer and
subordinate officers of the trust department;
and
g. The banks operation during the
h. It has not incurred net weekly
reserve deficiencies during the eight (8)
weeks period immediately preceding the
i. It has generally complied with
banking laws, rules and regulations,
Board and/or BSP Management in the last
two (2) preceding examinations prior to
the date of application, particularly on the
following:
by the BSP;
(3) the ceilings on credit accommodations
to DOSRI;
Appendix 5b - Page 1
APP. 5b
05.12.31
(5) single borrowers loan limit; and

other fixed assets.
j. It maintains adequate provisions for
of its assets portfolio but not lower than the
by the BSP;
k. It does not have float items
outstanding for more than sixty (60) calendar
days in the Due From/To Head Office/
Branches/Other Offices accounts and the
Due from BSP account exceeding one
percent (1%) of the total resources as of date
of application;
l. It has established a risk management
system appropriate to its operations
characterized by clear delineation of
responsibility for risk management, adequate

risk measurement systems, appropriately
structured risk limits, effective internal
controls and complete, timely and efficient
risk reporting system;
m. It has a CAMELS Composite Rating
with management rating of not lower than
3; and
n. It is a member of the PDIC in good
standing (for banks only);
regulations shall be maintained up to the
that fails in this respect shall be required to
show compliance for another test period of
the same duration.
REPORTS REQUIRED OF BANKS

(Appendix to Sec. X162)
A. UBs/KBs
Category
A-1
Form No.
Form 2B/2B.1
(BSP-7-16-03)
MOR Ref.
X162.9
(Cir. 576 dated
08.08.07 and
MAB-030
dated 10.04.07)
Report Title
Balance Sheet (BS)/Consolidated Balance Sheet
(CBS)
Frequency
Quarterly
Unnumbered
X162.16
(Cir. 512 dated
02.03.06, as amended
by M-2008-012 dated
03.14.08, M-2008011 dated 03.07.05,
M-026 dated
09.20.07, M-015
dated 05.28.07, Cir.
568 dated 05.08.07,
M-006 dated 07.07.06
and MAB dated
03.07.06)
Submission
Procedure
Diskette/CD/e-mail to SDC
sdckb-pbs@bsp.gov.ph
SDC
Fax to 523-3461 or 523-0230
20th banking day from

the date of the Call Letter
Financial Reporting Package (FRP)
SDC
Postal/messengerial
services/Fax to 523-3461 or
523-0230
Balance Sheet (FRP)

-
Solo basis (Head Office and branches)
- Consolidated basis(together with applicable

schedules)1/
Monthly
Quarterly
15th banking day after

end of reference month
end of reference quarter
Diskette/CD/Email to SDC2/
sdckb-frp@bsp.gov.ph
-do-
Only banks with financial allied subsidiaries, excluding insurance subsidiaries, shall submit the reports on consolidated basis.
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461 or hard
copy via postal/messengerial services.
APP. 6
08.12.31
Appendix 6 - Page 1

Control Prooflist duly notarized and signed by the

authorized official of the reporting bank
Published BS/CBS
A-1
Submission
Deadline
Form No.
MOR Ref.
Report Title
Income Statement (FRP):
-
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

-do-

-do-
Monthly

-do-
Solo basis (Head Office and branches)
- Consolidated basis1/
Schedules (Solo Report):
1
- Checks and Other Cash Items (COCI)
- Due from Other Banks
-do-
-do-
-do-
- Financial Assets Held for Trading
-do-
-do-
-do-
Quarterly

-do-
-do-
-do-
-do-
Monthly

-do-
3a - Held for Trading (HFT) Financial Assets

Purchased/Sold/Lent Under Repurchase
Agreements, Certificates of Assignment/
Participation with Recourse, Securities Lending
and Borrowing Agreements
4
- Derivatives Held for Trading (HFT)
4a - Derivatives Held for Trading

Matrix of Counterparty and Type of Derivative
Contracts
1
2
APP. 6
08.12.31
Appendix 6 - Page 2
Category
Category
Form No.
Submission
Procedure
Monthly

-do-
-do-
-do-
6a - Available for Sale Financial Assets Purchased/

Sold/Lent Under Repurchase Agreements,
Certificates of Assignment/Participation with
Recurse, Securities Lending and Borrowing
Agreements
Quarterly

-do-
6b to
6b4 - Available-For-Sale Financial Assets- Classified
as to Status
-do-
-do-
-do-
6c to
6c4 - Available-For-Sale
Financial
Assets
Movements in Allowances for Credit Losses
Annually

end of reference year
-do-
- Held to Maturity (HTM) Financial Assets
Monthly

-do-
7a
- Held to Maturity Financial Assets Sold/Lent

Under Repurchase Agreements, Certificates of
Assignment/Participation with Recourse,
Securities Lending and Borrowing Agreements
Quarterly

-do-
7b
- Fair Value of Held to Maturity (HTM) Financial

Assets
Annually

-do-
Report Title
5
- Financial Assets Designated at Fair Value through

Profit or Loss
- Available-For-Sale Financial Assets
Frequency
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission
deadlines to SDC via Fax No. (02) 523-3461 or hard copy via postal/messengerial services.
APP. 6
08.12.31
Appendix 6 - Page 3
Submission
Deadline
MOR Ref.
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
7c to
7c4 - Held to Maturity Financial Assets
Classified as to Status
Quarterly

Diskette/CD/e-mail to SDC1/
7d to
7d4 -
Annually

-do-
Held to Maturity Financial Assets

Unquoted Debt Securities Classified as Loans
Monthly

-do-
8a
Fair Value of Unquoted Debt Securities

Classified as Loans
Annually

-do-
8b to 8b4

Quarterly

-do-
8c to 8c4

Annually

Investment in Non-Marketable Equity

Securities
Monthly

10
Interbank Loans Receivables
-do-
-do-
11
Loans and Receivables - Others
-do-
-do-
11a to- Loans and Receivables - Others

11a4
-do-
-do-
APP. 6
08.12.31
Appendix 6 - Page 4
Category
-do-do-do-do-do-
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461 or hard copy via
postal/messengerial services.
1
Category
Form No.
MOR Ref.
Report Title
Submission
Procedure
Restructured Loans and Receivables

Monthly

Diskette/CD/e-mail to
SDC1/
11c to11c4

Quarterly

-do-
11d to11d4
Gross Loans and Receivables - Others

Classified as to Type of Business/Industry of
Counterparty
Monthly

-do-
11e to11e4

Classified as to Status Per PAS 39
Annually

-do-
Monthly

-do-
Quarterly

-do-
- Schedule of Agri/Agra SME, DIL and

Microfinance Loans and Receivables under
Schedule II- Classified as to Counterpary
11g1 - Report on Real Estate Exposure

11g2
Investment in Debt and Equity Securities

issued by Real Estate Companies
-do-
-do-
-do-
11g3
Original maturity and Earliest Repricing of

Real Estate Exposure
-do-
-do-
-do-
Loans and Receivables Arising from

Repurchase Agreements, Certificates of
Assignment/Participation with Recourse and
Securities Lending and Borrowing
Transactions
Monthly

-do-
12
APP. 6
08.12.31
Appendix 6 - Page 5
Submission
Deadline
11b to11b4
11f
Cir. No. 600

dated
02.04.08
Frequency
Form No.
MOR Ref.
Report Title
12a to
12a4
Loans and Receivables Arising from Repurchase

Participation with Recourse and Securities
Lending and Borrowing Transactions Matrix
of Counterparty and Issuer of Collateral
Securities
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

13
- Fair Value Adjustments in Hedge Accounting
-do-
-do-
-do-
13a
- Financial Derivatives Held for Fair Value

Hedge
-do-
-do-
-do-
13b
- Financial Derivatives Held for Cash Flow

Hedge
-do-
-do-
-do-
13c
- Financial Derivatives Held for Hedges of Net

Investment in Foreign Operations
-do-
-do-
-do-
13d
- Financial Derivatives Portfolio Hedge of

Interest Rate Risk
-do-
-do-
-do-
14
- Accrued Interest Income/Expense from

Financial Assets and Liabilities
-do-
-do-
-do-
15
- Investment in Subsidiaries, Associates and

Joint Ventures
Monthly

end of reference Month
-do-
APP. 6
08.12.31
Appendix 6 - Page 6
Category
Category
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure

SDC1/
15b - Details of Investment in Subsidiaries,

Associates and Joint Ventures
-do-
-do-
-do-
16
- Bank Premises, Furniture, Fixture and

Equipment
-do-
-do-
-do-
17
- Real and Other Properties Acquired
-do-
-do-
-do-
18
- Deferred Tax Assets and Liabilities
Annually

-do-
19
- Other Assets
Monthly

-do-
20
- Breakdown of Due from and Due to Head

Office/Branches/Agencies Abroad - Philippine
Branch of Foreign Banks
-do-
-do-
-do-
21
- Liability for Short Position
Quarterly

-do-
22
- Deposit Liabilities
Classified as to Type of Deposit
Monthly

-do-
Quarterly

-do-
- Investment in Subsidiaries, Associates and

Joint Ventures- Classified as to Nature of
Business
22a - Deposit Liabilities by Size of Accounts

Excluding Deposits in Foreign Offices/
Branches
APP. 6
08.12.31
Appendix 6 - Page 7
Quarterly
15a
Frequency
Form No.
MOR Ref.
Report Title
23
- Due to Other Banks
24
- Bills Payable
25
Frequency
Submission
Deadline
Submission
Procedure
Monthly

-do-
-do-
-do-
- Bonds Payable, Unsecured Subordinated

Debt and Redeemable Preferred Shares
Quarterly

-do-
26
- Fair Value of Financial Liabilities
Annually

-do-
27
- Financial Liabilities Associated with

Transferred Assets
Quarterly

-do-
28
- Other Liabilities
Monthly

-do-
29
- Interest Income/Expense from Financial

Instruments
Quarterly

-do-
29a - Interest Income from Due from Other Banks

Classified as to Type of Deposits
-do-
-do-
-do-
29b - Interest Income from Held for Trading,

Designated at FVPL, Available for Sale, Held
to Maturity Financial Assets and Unquoted
Debt Securities Classified as Loans
-do-
-do-
-do-
29c - Interest Income from Interbank Loans

Receivables
-do-

-do-
APP. 6
08.12.31
Appendix 6 - Page 8
Category
Category
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
29d to- Interest Income from Loans and Receivables 29d4 Others - Classified as to Status
Interest Income from Loans and Receivables Others - Classified as to Status
Quarterly
15th banking day after end

of the reference month
SDC1/
29e - Interest Income from Loans and Receivables

Arising from Repurchase Agreements,
Recourse and Securities Lending and
Borrowing Transactions
-do-
-do-
-do-
30a - Interest Expense on Deposit Liabilities
-do-
-do-
-do-
30b - Interest Expense on Bills Payable
-do-
-do-
-do-
30c - Interest Expense on Bonds Payable,

Unsecured Subordinated Debt and
RedeemablePreferred Shares
-do-
-do-
-do-
31
- Dividend Income
-do-
-do-
-do-
32
- Gains/(Loss) on Financial Assets and Liabilities

Held for Trading
-do-
-do-
-do-
33
- Gains/(Losses) from Sale/Redemption/

Derecognition of Non-Trading Financial
Assets and Liabilities
-do-
-do-
-do-
APP. 6
08.12.31
Appendix 6 - Page 9
Form No.
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
34
- Compensation/Fringe Benefits
Quarterly

of the reference quarter
35
- Other Administrative Expenses
-do-
-do-
-do-
36
- Depreciation/Amortization Expense
-do-
-do-
-do-
37
- Impairment Loss
-do-
-do-
-do-
38
- Off-Balance Sheet
-do-
-do-
-do-
38a - Compliance with Section X347
-do-
-do-
-do-
39 &
39a
-do-
-do-
Residual Maturity
Performing Financial Assets and Financial
Liabilities
-do-
40 & - Repricing - Performing Financial Assets and

40a
FinancialLiabilities
-do-
-do-
-do-
41
- Investment in Debt Instruments Issued by LGUs

and Loans Granted to LGUs
-do-
-do-
-do-
42
- Disclosure of Due From FCDU/RBU and Due

to FCDU/RBU
-do-
-do-
-do-
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Schedules (Consolidated Report):
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

SDC1/
Checks and Other Cash Items
-do-
-do-
-do-
Due from Other Banks
-do-
-do-
-do-
Financial Assets Held for Trading
-do-
-do-
-do-
3a Breakdown of Held for Trading (HFT)

Financial Assets
Purchased/Sold/Lent Under
assignment/Participation with Recourse, Securities
Lending and Borrowing agreements
-do-
-do-
-do-
-do-
-do-
-do-
4a Derivatives Held for Trading Matrix of

counterparty and Type of Derivative Contracts
-do-
-do-
-do-
Financial Assets Designated at Fair Value through

Profit of Loss
-do-
-do-
-do-
Available-For-Sale Financial Assets
-do-
-do-
-do-
-do-
-do-
-do-
Derivatives Held for Trading (HFT)
APP. 6
08.12.31
6a Available for Sale

Financial Assets
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
6b Available-For-Sale Financial Assets-Classified as

to Status
Quarterly

6c Available-for-sale Financial Assets Movements in

allowances for credit losses
Annually

Check with SDC
Quarterly

-do-
-do-
-do-
-do-
-do-
-do-
-do-
7b Fair Value of Held to Maturity

Financial Assets
Annually

-do-
7c Held to Maturity Financial Assets Classified as to

Status
Quarterly

7d Held to Maturity Financial Assets Movements in

Allowances for Credit Losses
Annually

Quarterly

-do-
8a Fair Value of Unquoted Debt

Securities Classified as to Status
Annually

8b Unquoted Debt Securities Classified as Loans

Quarterly

-do-
-do-
-do-
-do-
Held to Maturity (HTM) Financial Asset
7a Held to Maturity Financial Assets

-do-do-
Investment in Non-Marketable Equity Securities
-do-
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

SDC1/
11 Loans and Receivables - Others
-do-
-do-
-do-
11a Loans and Receevables - Others

-do-
-do-
-do-
11b Restructured Loans and Receivables

-do-
-do-
-do-
11c Loans and Receivables - Others

-do-
-do-
-do-
11d Gross Loans and Receivables - Others Classified

as to Type of Business/Industry of Counterparty
Economic Purpose
11e Loans and Receivables-Others
Classified as to status per PAS 39
-do-
-do-
-do-
Annually

-do-
Quarterly

-do-
10 Interbank Loans Receivables
-do11f
Cir. No. 600

dated 02.04.08
Schedule of Agri/Agra SME, DIL and

Microfinance Loans and Receivables Classified
as to Counterparty
-do-
-do-
-do-
11g2- Investment in Debt and Equity Securities Issued

by Real Estate companies
-do-
-do-
-do-
11g3- Original Maturity and Earliest Repricing of Real

Estate Exposure
-do-
-do-
-do-
APP. 6
08.12.31
11g1- Report on Real Estate Exposure
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

12a Loans and Receivables Arising from

Repurchase agreements, Cerificates of
Securities Lending and Borrowing transactions
Matrix of Counterparty and Issuer of Collateral
Securities
-do-
-do-
-do-
13
-do-
-do-
-do-
13a Financial Derivatives Held for Fair Value Hedge
-do-
-do-
-do-
13b Financial Derivatives Held for Cash Flow Hedge
-do-
-do-
-do-
13c Financial Derivatives Held for Hedges of Net

-do-
-do-
-do-
13d Financial Derivatives Portfolio Hedge of Interest

Rate Risk
-do-
-do-
-do-
14
Accrued Interest Income/Expense from

financial Assets and Liablities
-do-
-do-
-do-
15
Equity Investment in Subsidiaries,

-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
12

Securities Lending and Borrowing Transactions
Fair Value Adjustments in Hedge Accounting
15a Equity Investment in Subsidiaries, Associates

and Joint Ventures-Classified as to Nature of
Business
15b Details of Investment in Subsidiaries, Associates
and Joint Ventures
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
16
Bank Premises, furniture, Fixture and Equipment
17
Real and Other Properties Acquired
18
Frequency
Submission
Deadline
Submission
Procedure

SDC1/
-do-
-do-
-do-
Deferred Tax Assets & Liabilities
Annually

-do-
19
Other Assets
Quarterly

-do-
20
Breakdown of Due from and Due to Head

Office/Branches/Agencies Abroad - Philippine
Branch of a Foreign Bank
-do-
-do-
-do-
21
Liability for Short Position
-do-
-do-
-do-
22
Deposit Liabilities Classified as to Type of

Deposit
-do-
-do-
-do-
22a Deposit Liabilities by Size of Accounts

Excluding Deposits in Foreign Offices/Branches
-do-
-do-
-do-
23
Due to Other Banks
-do-
-do-
-do-
24
Bills Payable
-do-
-do-
-do-
25
Bonds Payable, Unsecured Subordinated

-do-
-do-
-do-
26
Fair Value of Financial Liabilities
Annually

-do-
APP. 6
08.12.31
Quarterly
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

Other Liabilities
-do-
-do-
-do-
Interest Income from Due from Other Banks

-do-
-do-
-do-
29a Interest Income from Due from Other Banks

-do-
-do-
-do-
29b Interest Income from Held for Trading,

Designated at FVPL, Available for Sale, Held to
Maturity Finacial Assets and Unquoted Debt
Securities Classified as Loans
-do-
-do-
-do-
29c Interest Income from Interbank Loans

Receivables
-do-
-do-
-do-
29d Interest Income from Loans and Receivables Others - Classified as to Status
-do-
-do-
-do-
29e Interest Income from Loans and Receivables

certificates of Assignment/Participation with
Borrowing Transactons
-do-
-do-
-do-
30a Interest Expense on Deposit Liabilities
-do-
-do-
-do-
30b Interest Expense on Bills Payable
-do-
-do-
-do-
30c Interest Expense on Bonds Payable,

Redeemable Preferred Shares
-do-
-do-
-do-
27
Financial Liabilities Associated with

Transferred Assets
28
29
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure

Diskette/CD/e-mail to SDC1
Gains/(Loss) on Financial Assets and Liabilities

Held for Trading
-do-
-do-
-do-
33
Gains/(Losses) from Sale/Redemption/

-do-
-do-
-do-
34
Compensation/Fringe Benefits
-do-
-do-
-do-
35
Other Administrative Expenses
-do-
-do-
-do-
36
Depreciation/Amortization Expense
-do-
-do-
-do-
37
Impairment Loss
-do-
-do-
-do-
38
Off-Balance Sheet
-do-
-do-
-do-
38a Compliance with Section X347
-do-
-do-
-do-
39
Residual Maturity Performing Financial Assets

and Financial Liabilities
-do-
-do-
40
Repricing - Performing Financial Assets and

Financial Liabilities
-do-
-do-
-do-
41
Investment in Debt Instruments Issued by

LGUs and Loans Granted to LGUs
-do-
-do-
-do-
42
Disclosure of Due from FCDU/RBU and Due

to FCDU/RBU
-do-
-do-
-do-
Dividend Income
32
APP. 6
08.12.31
Quarterly
31
A-1
Form No.
Unnumbered
MOR Ref.
X116.4
1116.5
(As amended by
Cir. Nos. 574
dated 07.10.07,
503 dated
12.22.05 and
475 dated
02.14.05)
Report Title
Unnumbered
X602.5
Cir. No. 594
dated 01.08.08,
as amended by
M-2008-009
dated 02.27.08
Submission
Deadline
Submission
Procedure
Quarterly

SDC
-do-

SDC
Monthly

CMSG
cc:
SDC
cmsg@bsp.gov.ph.sdcderivatives@bsp.gov.ph
Certification (Hard Copy)
Monthly

Receiving Section, SES
Consolidated Daily Report of Condition:

Schedules:
Schedule 1 - Other Non-Risk Assets
Schedule 2 - Selected Domestic Accounts
and Conrol Proofsheet
Weekly
3rd banking day after

end of reference week
cc mail: SDC at
sdckb-cdrc@bsp.gov.ph
Computation of the Adjusted Risk-Based Capital

Adequacy Ratio Covering Combined Credit Risk,
Market Rist, and Operational Risk
- Solo basis (Head Office and branches)
- consolidated basis (parent bank plus subsidiary

financial allied undertakings, but excluding
A-1
Frequency
Derivatives Report
Schedules:
Report on Outstanding Derivatives Contracts
(Stand - Alone - RBU, Stand - Alone - FCDU,
Hybrid)
Report on Trading (Gains/Losses) on Financial

Derivatives
A-3
DCB I/II Form 1

X116.2
(Revised June 2001 X121.5
X258
Annexes - Weekly Inventory of GS Held
SDC via Fax no (02)5233461

or
postal/
messengerial service
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
CARE Reports
Reports on Required and Available Reserves on:
- Deposit Substitutes/Interbank Loans; and
KAR 230KB (BSP-SES

1.03)
KAR 240KB (BSP-SES
1.04)
KAR 250KB (BSP 7-16
-07)
KAR 260KB (BSP 7-1601.1-.3)
KUB 265DR
A2
Unnumbered
A2
Unnumbered
BSP - 16-35 TR
A2
Unnumbered
Submission
Deadline
Submission
Procedure
Weekly
Upon completion of
Processing by SDC
(Note: CDRC-sourced
reports generated by
SDC are furnished to the
appropriate department
of the SES)
Weekly

In diskette format
hardcopy via postal/
messengerial service via
electronic mail at sdckbtrust@bsp.gov.ph to
SDC
-do-

In diskette format to: SDC
Quarterly

SDC via electronic mail at

sdckb-trust@bsp.gov.ph
-do-

SDC via electronic mail at

sdckb-trust@bsp.gov.ph
Quarterly
20th banking day after the

SDC
sdckb-frpti@bsp.gov.ph
Reports on Minimum Capital Required Under

Section 34 of R.A. No. 8791
Summary Utilization of Available Reserves; &
Liquidity
Floor on Gov't Funds Held
X405.9
Report on Peso-Denominated Common Trust Fund

and Other Similarly Managed Funds
X405.9
Report on Trust and Other Fiduciary Accounts

(TOFA) - Others
X162
X425.2
Report on Trust and Other fiduciary Business and

X425.2
Report on Investment Management Activities
X425.2
(Cir. 609 dated
05.26.08 as
amended
by M-2008-022
dated 06.26.08
Financial Reporting Package for Trust Institutions
APP. 6
08.12.31
A2
Frequency
(Per CL dated
8-20-98)
A2
Report Title
Form No.
MOR Ref.
Report Title
Schedules:
Balance Sheet
A1 to A2
Main Report
B to B2
Details of Investments in Debt and
Equity Securities
C to C2
Details of Loans and Receivables
D to D2
Wealth/Asset/Fund Management UITF
E
Other Fiduciary Accounts
E1 to E1b
Other Ficuciary Services - UITF
Income Statement
Control Prooflist
A2
Unnumbered (no
prescribed form)
A2
Unnumbered
X141.9
App. 52a
(Revised May
Unnumbered
App. 52a
Rev. May 2002,
as amended by
Cir. No. 612
dated 06.03.08
Submission
Deadline
Submission
Procedure
Quarterly

SDC
Acknowledgment of copies of specific duties and

responsibilities of the board of directors and of a
director and certification that they fully understand
the same
Annually or
as directors
are elected

date of election
Hardcopy to CPCD/ISD or
Appropriate department of
the SES
Covered Transaction Report (CTR)
As
transaction
Occurs

the occurence of the
transaction
Original and duplicate to

Anti-Money Laundering
Council (AMLC)
-do-
-do-
-do-
2002, as
amended by
Cir.no. 612
dated 06.03.08)
A2
Frequency
Suspicious Transaction Report (STR)
* A report is not required if no transfers were effected during the month.
APP. 6
08.12.31
Category
Category
Report Title
Submission
Procedure
MOR Ref.
A2
Unnumbered
App. 52a
(Cir. 279 dated
04.02.01)
Certification on compliance with Anti-Money

Laundering Regulations
Annually

Original and duplicate Appropriate department

of the SES
A2
Unnumbered
(Cir.No.
607dated
04.30.08,
as amended by
M-2008-021
dated 06.16.08
Report on Microfinance Loans
Monthly

end of the reference month
SDC
sdckb-micro@bsp.gov.ph
-do-
-do-
SDC via Fax at (632)

523-3461 or 523-0230
Quarterly

SDC
sdckb-micro@bsp.gov.ph
-do-
-do-
SDC via Fax at (632)

523-3461 or 523-0230
Self-Assesment and Certification of Compliance with

Rules and Regulations on Bank Protection/ Updated
Security Program
Annually
On or before 30 january
Appropriate department
of the SES
Statement of Condition (By Banking Unit) with the

prescribed schedules (including ROPA by banks), to
wit:
Quarterly

Original and duplicateAppropriate department

of the SES
Control Prooflist
A2
Unnumbered
(Cir. No.
607 dated
04.30.08
as amended by
M-2008-021
dated 06.16.08
Income Statement on Microfinance Operations
Control Proofllist
A2
Unnumbered
X171.5
Cir. No. 620
dated 09.03.08
A3
X162
APP. 6
08.12.31
DCB I/II Form 2C

(BSP-7-16-02-KB)
(Revised Nov. 2003
per MAB dated
12.30.03)
Frequency
Submission
Deadline
Form No.
Form No.
MOR Ref.
X162.6
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Schedules:
1 - Loans-to-Deposit Ratio
Supplementary Information;
2 - Aging of Loans and Selected Receivables (Revised
September 2003 per MAB dated 12.30.03);
3 - Report on Reconciling Items of More than Six (6)
months in "Due From Head Office/Branches/
Agencies" accounts;
X162
4 - Breakdown of Due From/Due to Local Banks and

Domestic Deposit Liabilities (BSP-7-16-02-KB.1);
X162
5 - Breakdown of Domestic Savings Deposits (BSP-716-02-KB.2)
A3
DCB I/II Form 3B

X162
(BSP-7-16-04- A)
(Revised November
2003 per MAB dated
12.22.08
Statement of Income and Expenses (By Banking Unit)

(NOTE: Covering the periods: for the !st Quarter, 1st
Semester, Three Quarters and for the Year,
respectively)
Quarterly

end of the reference
quarter
Original- SDC
Duplicate - Appropriate
department of the SES
A3
Unnumbered
Report of Selected Branch Accounts

Schedules
Semestral

endof reference semester
Cc: Mail - SDC

sdckb-bris@bsp.gov.ph.
X393
(Cir. 613 dated
06.18.08,
as amended by
M-2008-032
dated 10.31.08)
Selected Balance Sheet Accounts

Selected Balance Sheet and Income
Statement Accounts
Aging of Loans and Receivables - Others
Breakdown of Deposit Liabilities
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Bank Loans-to-Deposits Ratio

Reconciling Items Outstanding for More than Six (6)
Months on the Due From/Due To Head Office,
Branches and Agencies Account
DCB I/II Form 5
(BSP-7-16-07-A
X331
X409.3
Daily Report on Compliance with Aggregate Ceiling

on Direct/Indirect Credit Accommdations to Directors/
Officers/Stockholders(DOSRI), Secured and
Unsecured Loans
Weekly

Original and duplicateAppropriate deparment

of the SES
A3
DCB I/II Form 5A

(BSP-7-16-07-B)
X330
X409.3
Daily Report on Compliance with Ceiling on

Outstanding Unsecured Direct and Indirect Credit
Accommodations
to
Directors/Officers/
Stockholders(DOSRI)
-do-
-do-

of the SES, as combined
report w/ Form 5 above
A3
SES I/VI Form 5A.1

(BSP-716-07B.1)
X330
X409.3
Daily Report on Compliance with Individual Ceilings

on Direct Credit Accommodations to DOS, secured
and unsecured loans together with a Certification by
authorized signatories that no one has exceeded the
prescribed individual ceilings
-do-
-do-

of the SES, as supporting
schedules to Form 5A
above
A3
DCB I/II Form 5B

(BSP-7-16-13)
X335
X409.3
Consolidated Report on Compliance With Aggregate

Ceiling on Credit Accommodations to DOSRI
Semestral

end
of
reference
semester

of the SES
A3
DCB I/II Form 5D

(BSP-7-16-17)
X334
Report on Compliance with Section 36 of

R.A. No. 8791
Transmittal of Board resolution/Written approval on
credit Accommodatin to DOSRI in compliance with
Sec. 36 R.A. No. 8791
As loan to
director or
officer is
approved

approval of direct or
indirect loan granted any
director or officer (DOSRI)
-do-
APP. 6
08.12.31
A3
Form No.
MOR Ref.
Submission
Procedure
Frequency
Transmittal of Board Resolution/Written Approval On

Credit Accommodations to Subsidiaries and/or
Affiliates
As loan to
subsidiaries
and/or
affiliates is
approved

approval

of the SES
X162.5
X162.15
Sworn Statement on Real Estate/Chattel Transaction

to DOS
As
transaction
is approved

approval of the
transaction
-do-
DCB I/II Form 6 X342.6

(MAB dated
Report on Compliance with Mandatory Credit

Allocation Required by R.A. No. 6977 as amended by
R.A. Nos. 8289 and 9501
(Solo and Consolidated Reports
Quarterly

Cc: Mail/e-Mail/Diskette-SDC
sdckb-sme@bsp.gov.ph
A3
Unnumbered
A3
DCB I/II Form 5E

(BSP-7-16-31)
A3
Submission
Deadline
Report Title
X328.5
(Cir. 560 dated
01.31.07)
4.28.03,
as amended
by M-2008035 dated
11.19.08 and
Cir. 625 dated
10.14.08)
Schedules:
1A
Computation of Total Loan Portfolio for

Purposes of Determining Amount of
Mandatory Credit Allocation for MSMEs
1A-1
Wholesle Lending of a Bank to Conduit
NBFIs w/o QB authority Other Than
those for On-Lending to MSMEs
1A-2
Loans Granted Under Special Financing
Program Other Than for MSMEs
1A-3
Loans Granted to MSMEs Other Than To
BMBEs Which are Funded by Wholesale
Lending of or Rediscounted with Another
Bank
1B
Details of Eligible Investments for
Compliance
with the Required Credit Allocation for
MSMEs
1B-1
Loans Granted to MSMEs Other Than to
Bank
the SES;
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
1B-2
2
3
DCB I/II Form 2D
X162
DCB I/II Form 2E
X162.12
Submission
Procedure
Quaterly

Via Fax at (632)

5233461 or 5230230
Statement of Condition (For branches/agencies/offices

abroad of domestic banks) with schedules,
as follows:
-do-
-do-

of the SES
1 - Analysis of Due to Head Office/Branches/Agencies

Account; and
Semestral
Attachment to Main
Report
-do-
Attachment to Main
Report
2 - Schedule of Selected Accounts - Classified by

Country
A3
Submission
Deadline
Wholesale Lending or Rediscounting

Facility Granted to Participating Financial
Institutions for On-Lending to MSMEs
other than to BMBEs
Loans Granted to BMBEs
Reconciliation of Loans granted to MSMEs
as Reported Under Schedules 1B,1B-1 and
2 and FRP Balance of Microfinance and SME
Loans
Control Prooflist,duly notarized and signed by the

authorized official
A3
Frequency
Quarterly
1 - Analysis of Due to Parent Firm/Bank and/or

Other Susidiaries/Affiliates; and
Semestral
2 - Schedule of Selected Accounts - Classified by

Country
-do-


of the SES, and Triplicate
- ID
Attachment to Main
Report
APP. 6
08.12.31
Statement of Conditon (For subsidiaries/affiliates

abroad of domestic banks) with schedules, as
follows:
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
A3
DCB I/II Form 3C
X162
Statement of Income and Expenses (For branches/

agencies/offices abroad of domestic KBs)
Quarterly/
Annually

of reference quarter/year
Original and duplicateAppropriate department of

the SES
A3
DCB I/II Form 3D
X162.12
Statement of Income and Expenses (For subsidiaries/

affiliates abroad of domestic KBs)
-do-
-do-
-do-
A3
BSP-7-16-27
X341.9
(Revised Dec.
2004 per
MAB
dated 9.8.04)
Consolidated Report on the Utilization of Loanable

Funds Generated Which Were Set Aside for Agrarian
Reform/Other Agricultural Credits with prescribed
schedules to wit:
Quarterly
-do-
Original and duplicate SDC

Electronic mail at
sdckb-agra@bsp.gov.ph
Upon transmission/
submission of main
report
Original - SDC (by fax, if

hard copy cannot be
submitted on deadline)
- Total Collections from Loan Portfolio as of 31

May 1975
- Direct Loans to Farmers' association or

cooperatives for High Value Crop Projects
Under Sec. 8 of R.A. 7900
- Utilization of the 10% Loanable Funds

Generated for Agrarian Reform Credit
- Utilization of the 15% Loanable Funds

Generated for Agricultural Credit Loans
- Development Loan Incentives Under Sec. 9,

R.A. 7721
- Report on Compliance with P.D. 717 Under

Sec. 11 of R.A. 7835
- Report on Loans Granted to BMBEs (Revised

per MAB dated 4.28.03)
Control Prooflist (notarized)
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
A3
Unnumbered
(CL-2007050 dated
10.04.07
CL-2007-059
dated
11.28.07)
DCB I/II Form 4 X162.7
(BSP 7-16-11) (Rev. June

2006per Cir.
533 dated
06.19.06)
B
DCB I/II Form 6C
(BSP 7-16-20)
DCB I/II Form 6E

(BSP 7-16-16)
X156.2
DCB I/II Form 6F

(BSP 7-16-18)
X144
(CL dated
1.09.01
as
amended
by M2008-024
dated
07.31.08)
Frequency
Submission
Deadline
Submission
Procedure
Report on Borrowings of BSP Personnel
Quarterly

Original to SDC
Consolidated List of Stockholders and Their

Stockholdings
Annually/
quarterly
when any
change
occurs

end of calendar year and
if there are chages, 12th
banking day after end of
the reference quarter
Original - Appropriate
Availments of Financial Assistance to Officers and

Employees Under an Approved Plan
Semestral

the end of reference
semester

of the SES
Report on New Schedule of Banking Days/Hours
As changes
occur
7th banking day before

the intended effectivity of
the change
-do-
Biographical Data of Directors/Officers If sent by

electronic mail - Notarized first page of Biographical
Data or Notarized list of names of Directors/Officers
whose Biographical Data were submitted thru
electronic mai to be faxed to SDC
After
election or
appointment
and as
changes
occur

the date of the meeting
of the board of
directors in which the
directors/officers are
elected or appointed
CC: Mail/Diskette: SDC

of the SES
If submitted in diskette form - Notarized first page of

each of the directors'/officers' bio-data save in diskette
and control prooflist
Report on Disqualification of Director/officer
APP. 6
08.12.31
X339.4
June
2005 per
Cir. 487
dated
12.22.08
Report Title
Form No.
MOR Ref.
Report Title
MAAB dated
09.02.04
Certification under oath of independent directors that

he/she is an independent directior as defined under
Subsec. X141.1 and that all the information hereby
supplied are true and correct
X143.3
Cir. 513
dated
02.10.06
Verified Statement of Directors/Officers
Frequency
Submission
Deadline
Submission
Procedure
CC:Mail/Diskette:SDC
the SES
After
election or
appointment
and as
chages
occur
7th banking day as

changes occur or after
election/appointment
-do-
Annually

annual
election/
appointment
Original and duplicate Appropriate department of

the SES
Unnumbered
List of Members of the Board of Directors and Officers
SES Form 6G X162.4

(BSP 7-16-20) (As amended
Report on Crimes/Losses
As crimes or
incidents
occur
Not later than ten (10)

calendar days from
knowledge of crime/
incident and complete
report not later than
twenty (20) calendar days
from termination of
investigation
SDC and SITD
Report on Disqualification of Director/Officer
As disqualification
occurs
Within 72 hours from

receipt of report by the
BOD
of the SES
by Cir. Nos.
587 dated
10.26.07 and
486 dated
6.01.05)
Unnumbered
(no prescribed
form)
X143.4
DCB I/II Form 6H X306.5c

(BSP-7-16-21)
Notice/Application for Write-Off of Loans, Other Credit

Accommodations, Advances and Other Assets
As write-off
occurs
Within 30 banking days

after every write-off

of the SES
BSP-7-16-32 A
(Rev. August
2003)
Report on Credit and Equity Exposures to Individuals/

Companies/Groups aggregating P1.0 million and
above (Bank Proper and Trust Department)
Quarterly

end of reference qurter
Electronic submission/
diskette - SDC
X162
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Unnumbered
X162.10
Report on Consolidated Financial Statements of Banks

and their Subsidiaries Engaged in Allied Financial
Undertakings together with audited financial reports
of such subsidiaries
Annually
120th calendar day

after the end of reference
year or adopted fiscal
period

of the SES
Unnumbered
X166.6
Annual Report of Management to Stockholders

Covering Results of Operations for the Past Year
-do-
180th calendar day after

the close of the calendar/
fiscal year elected by the
bank
-do-
Unnumbered
X166
Financial Audit Report - Bank Proper

a.
Audited Financial Statements1/
Annually

the close of the calendar
or fiscal year
-do-
-do-
-do-
-do-
-do-

receipt of the report
-do-
b.
B
X426.2
Financial Audit Report - Trust Department

a.
b.
Unnumbered
X166
X166.1
Unnumbered
X426.2
Opinion of the Auditor together with

attachments listed in Appendix 61
Annual Audit Report 2/ - Bank Proper

a.
b.
Opinion of the Auditor Together with

As
examination
occurs
-do-
Original and duplicateAppropriate


APP. 6
08.12.31
Annual Audit Report 2/ - Trust Department

a.
b.
-do-

Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Unnumbered
X162.12
Audited Financial Statements of the Foreign Banking

Offices and Subsidiaries
Annually

date of submission/
release of said reports
to the foreign banking
offices and subsidiaries
of Philippine banks
Original and Duplicate Appropriate department

of the SES
Unnumbered
X162.12
Examination Reports Done by the Foreign Bank

Supervisory Authority
As
examination
occurs
-do-
-do-
Unnumbered
X162.3
Report on Change of required Information on Bank's

Profiles, Organizational Structure and Operating
Policies
As changes
occur

such change/issuance
-do-
Unnumbered
X162.1
Report on Designation of Authorized Signatories of

Bank's Reports Classified as Category A-1, A-2, A-3
and B
As
designation
by Bank's
board of
directors
occurs
3rd banking day from

date of disignation/and
as changes occur
-do-do-
Unnumbered
X342.2c
Report on reconciliation Statement of Demand Deposit

Account with the BSP
Monthly

receipt of BSP statement
-do-
Unnumbered
X233.9
Registry Bank Report of Compliance with Prohibition

on Holdings of LTNCTDs
-do-

-do-
Unnumbered
X262.3
Certification of Compliance with Section 55.4 of R.A.

No. 8791(prohibits banks from employing casual,
non-regular personnel)
Semestral

end of June and Dec.
Unnumbered
Certification on Funds Borrowed from FCDU/EFCDU
Monthly

Original and Duplicate Appropriate department

of the SES
X501.3
(Revised
Jan. 2003 per
Cir. 366 dated
1.21.03)
APP. 6
08.12.31
Category
Category
Form No.
Unnumbered
MOR Ref.
X565
X409.16
Unnumbered X235.12
(Cir. 467
Report Title
Frequency
Conversion/Transfer of FCDU loans to RBU (A report

is not required if no transfers were effected during the
month)
Monthly
Waiver of the Confidentiality of Information under

Sections 2 and 3 of R.A. No. 1405, as amended
As
transaction
occurs
Report on Undocumented Repurchase Agreement
Submission
Deadline
Submission
Procedure

of the SES
-do-
-do-

knowledge of transaction
-do-
Semestral

of referenc semester
-do-
Annual

annual Stockholders'
meeting or if changes
occur, 7days from date of
change
Drop box - SEC Central

Receiving Section
dated
1.10.05)
SEC Form
Notarized Certification that the bank did not enter into

Repuchase Agreement covering Government
Securities, commercial Papers and Other
Nonnegotiable securities or instruments that are not
documented
(MAB dated
09.02.05)
General Information Sheet
(M-2008-005
dated
02.04.08)
Disclosure statement on SPV Transactions
Quarterly

SDC
(CL-2008-024
dated
05.08.08)
Report on Bank Liabilities to Non - Residents
Monthly

International Dept. (ID)

id-form5@bsp.gov.ph
-do-
-do-
DES/ID
Reports:
A2
ID Form 5
Banks Certification
Hardcopy to ID
APP. 6
08.12.31
X235.12
A3
Form No.
MOR Ref.
Fx Form1
Main Report
(Formerly FED
Form 1)
Rev. 2000,
as amended
by M-2008031 dated
10.23.08
Report Title
Consolidated Foreign Exchange Assets and Liabilities
in Original Currency - RBU & FCDU
Frequency
Submission
Deadline
Submission
Procedure
Weekly

after end of the reference
week
CC: Mail to Appropriate

department of the SES /ID
and DES and hardcopy to
ID
Summary of FX Acquisitions and Dispositons
-do-
-do-
-do-
Interbank Transactions
-do-
-do-
-do-
FX Acquisition from Loans
-do-
-do-
-do-
FX Disposition for Loans
-do-
-do-
-do-
Other Current Accounts and Transfers

Acquisitions/Dispositions (As amended by
CL dated 5.8.03)
-do-
-do-
-do-
- Investment Acquisition/Disposition
-do-
-do-
-do-
- Other FXAcquisitions/Dispositions
-do-
-do-
-do-
- Details of Spot and Forward FX transactions
Daily
2nd banking day after

end of reference day
-do-
- Export Proceeds
Weekly

after end of the
reference week
-do-
-do-
-do-
-do-
10 - Import L/Cs opened and Records of Goods

Imported (RGIS) under DA-OA
-do-
11 - Import Payments
12 - Spot and Financial Derivatives Acquisition/
Disposition
-do-
-do-
-do-
13 - FX Position Report
-do-

-do-
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
A3
BSP-ID Form
No.1 S-2008
(CL-2008-004
dated 11 Jan.
2008)
Monthly FX Sales by authorized Agent Banks (AABs)

for Outward Investments
Monthly

of reference month
Original - ID
A3
Unnumbered
(Per CL dated
09.05.97)
X503
(As
amended
by Cir No.
445 dated
08.20.04)
Consolidated FX Position Report of Bank's branches/

offices, subsidiaries/affiliates, here and abroad with
Certification of its CEO and Treasurer at month-end
Daily

the semester
CC:Mail to appropriate
department of the SES/
DES/ID & hardcopy to ID
A3
FX Form 1 Sch. 1
(Formely FED
Form I, Sch.16)
Consolidated Foreign Exchange assets and Liabilities

in Original Currency - RBU & FCDU
Monthly

the month
CC:Mail to appropriate
department of the SES/
DES/ID
RS Form 1A
(BSP 5-17-30)
1162.13
Report on the Volume and Interest Rates on Loans

and Discounts Granted
Weekly
Not later than 4:00pm

Thursday after end of
reference week
Original - DES
RS Form 1A
(BSP 5-17-33)
1162.13
Report on the Volume and Weighted Monthly Average

Interest Rate on Savings Deposit
Monthly
Not later than 2:00

P.M. on the following
day after end of
reference month
RS Form 1B
(BSP 5-17-30)
1162.13
Weighted Average Interest Rate on Outstanding Loans

and Discounts
-do-
RS Form 1B
(BSP-5-17-27)
1162.13
Daily Report on Volume of Money Market

Transactions
Daily
Not later than 3:00

P.M. on reference day
RS Form 2A
(BSP-5-17-33)
1162.13
Report on the Volume of Interest Rates on Deposits
Weekly
Not later than 4:00pm

Thursday after end of
reference week
BSP-5-17-35.A
1162.13
Report on the Volume of and Interest Rates on Credit

Line Availments under Short Term Prime Rates
Monthly
Not later than five (5)

banking days after end
of reference month
-do-
-do-doAppropriate
APP. 6
08.12.31
-do-
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
RS Form 2C
(BSP 5-17-36)
Weekly Report on Quoted Rates of Dollar Savings

and Time Deposits
Weekly
Not later than 2:00 P.M.

of every Thursday
Original - DES
RS Form 2D
(CBP 5-17-34A)
Daily Report on the Volume of and Weighted Average

Rates on Promissory Notes issued
Daily
-do-
-do-
RS Form 2E
Daily Report on the Volume of and Weighted Average

Rates on Time Deposits Received
-do-
Not later than 4:00 P.M.

of the following day
-do-
TCRKB.dbf
Report of Outstanding Loans, Advances, Dixcounts

and Trading Account Securities
Semestral

the semester
Email to des@bsp.gov.ph

the semester
Fax to DEX (523-7985)
Monthly

In Diskette-format to DES
As transaction occurs
30th day from date of

bond flotation by Local
Government Unit
DES
Weekly

SDC
sdc-ndf@bsp.gov.ph
-do-
-do-
(As
amended by
CL dated
01.11.06)
Control Proof List for Outstanding Loans and Loans

Granted
B
Combined
BSP 5-17-02 and
BSP 5-17-31
Unnumbered
Report on Credits Granted and Outstanding - By

Banking Units
X425.3
Post Bond Flotation Report
Unnumbered
(M-2008-019 dated
05.03.08)
Report on Non-Deliverable USD/PHP Forward

Transactions with Non-Residents
(M-2008-019 dated
05.03.08)
Control Prooflist
cc:Treasury Dept. fxomo@bsp.gov.ph SDC

via Fax at (632) 5233461
or 5230230
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Unnumbered 1602
(As amended
by Cir.
No. 591 dated
12.27.07)
Frequency
Submission
Deadline
Submission
Procedure
Report on Cancellations, Roll-overs and Non-Delivery

of Fx Forwards Purchase - Sales Contracts and Forward
Leg of Swap Contracts1
(For banks with derivatives license)
Monthly

ID at e-mail address:
id@bsp.gov.ph SDC at
e-mail address:
sdcfxkbdom@bsp.gov.ph
sdcfxkbfor@bsp.gov.ph
Report on Sale of Foreign Currency (FC) for Advance

Payment of Importations up to $100,000.00
-do-
Within the first 5 banking

days of the month
succeeding the date of
foreign exchange sale
ID
Unnumbered
CL-2008-003
dated
01.11.08
Unnumbered
CL-2008-003
dated
01.11.08
Report on Purchase of Foreign Currency (FC) from

Refund of Advance Payment of Importations up to
$100,000.00
-do-
Within the first 5 days of

the month succeeding
the receipt of the refund
ID
IOD Form1
(CL dated
4.23.03, as
amended by
Cir. No. 611
dated
05.30.08)
Consolidated Daily Foreign Portfolio Investment

Registration and Outward Remittance Report
Daily
2nd banking day from

transaction date
ID@ iodpid@bsp.gov.ph/
Unnumbered
Schedules:
Annex 1a - Initial Registration

issuance of BSRD
Annex 1b - Changes on Existing Registered

Investments

settlement/completion of
required documents
Annex 1c - Repatriation

remittance date (when FX
was actually remitted)
Statement of Remittance Report

Part II: Report on Repatriation/FX Remittances Accruing
to Registered Foreign Direct Investments
-do-

transaction date
Hardcopy to ID
APP. 6
08.12.31
Report Title
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
IOS Form4
(BSP 6-22-01)
Consolidated Report on Loans Granted by FCDUs/

EFCDUs
Monthly

Duplicate - ID
Unnumbered (As amended
Report on FX Swaps with Custormers1 where 1st Leg is

a Purchase of FX Against Pesos (For banks with
derivatives license)
-do-

ID at e-mail address:
iod@bsp.gov.ph SDC at
e-mail address:
Report on Foreign Guarantees Securing Loans of

Residents from Local Banks and Financial Institutions
-do-

Original - ID
by Cir. No.
591 dated
12.27.07)
R-4
R-1
Report on Guarantees Issued by Local Banks and

Financial Institutions in Favor on Non-Residents
Quarterly

-do-
BSP 6-40-04
Statement of Earnings and Expenses
Semestral

of reference semester
-do-
Report on Negotiation of Accounts Rediscounted with

Banko Sentral
Monthly

of reference month
Original - DLC
Domestic Operation Sector Report

DOS Form I
(DLC Form G)
APP. 6
08.12.31
Category
B. TBs
Category
A-1
Form No.
MOR Ref.
Unnumbered X162.16
(Cir. 512 dated
2.3.06, as amended
by M-2008-012
dated 03.14.08, M2008-011 dated
03.07.08, M-026
dated 09.20.07, M015 dated25.28.07,
Cir. 568 dated
05.08.07, M-006
dated 07.07.06 and
MAB dated
03.07.06)
Report Title
Frequency
Submission
Deadline
Submission
Procedure

Balance Sheet (FRP):
- Consolidated basis (together with applicable

schedules)1/
Monthly

Diskette/CD/Email to
SDC2/
sdctbfrp@bsp.gov.ph
Quarterly

-do-
-do-

-do-
-do-

-do-
Monthly
15 banking day after end

-do-

schedules)1/
1 - Checks and Other Cash Items (COCI)
-do-
-do-
-do-
-do-
-do-
-do-
Only banks with financial allied subsidiaries, excluding insi\urance subsidiaries, shall submit the reports on consolidated basis.
APP. 6
08.12.31
Form No.
MOR Ref.
Submission
Procedure
Frequency
3a - Breakdown of Held for Trading (HFT)

Financial Assets Purchased/Sold/Lent under
Assignment/Participation with Recourse,
Securities Lending and Borrowing Agreements
Quarterly

sdctb-frp@bsp.gov.ph
-do-
-do-
-do-
Monthly

-do-
4a - Derivatives Held for Trading Matrix of

Counterparty and Type of Derivative Contracts
5
- Financial Assets Designated at Fair Value

through Profit or Loss
-do-
-do-
-do-
-do-
-do-
-do-
Quarterly

quarter
-do-
-do-
-do-
-do-
Annually

end of the reference year
-do-
Monthly

Quarterly

6a - Breakdown of Available for Sale Financial

Assets Purchased/Sold/Lent Under Repurchase
Participation with Recouse, Securities Lending
6b to
6b3 - Available-For-Sale
Financial
Assets
6c to
6c3 - Available-For-Sale Financial Assets
7
- Held to Maturity (HTM) Financial Assets
7a - Held to Maturity Financial Assets Purchase/

Recourse, Securities Lending and Borrowing
Agreements
1
Submission
Deadline
Report Title
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC
via Fax No. (02) 523-3461 or hard copy via postal/messengerial services.
-do-
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
Annually

SDC1/
7c to
7c3 - Held to Maturity Financial Assets Classified as
to Status
Quarterly

-do-
7d to
7d3 - Held to Maturity Financial Assets
Annually

-do-
Monthly

-do-
Monthly
-do-
-do-
8b to
8b3 - Unquoted Debt Securities Classified as Loans
Quarterly

-do-
8c to
8c3 - Unquoted Debt Securities Classified as Loans
Annually

of the reference year
-do-
Monthly

-do-
10 - Interbank Loans Receivables
-do-
-do-
-do-
11
-do-
-do-
-do-
7b - Fair Value of Held to Maturity (HTM)

Financial Assets
- Unquoted Debt Securites Classified as Loans
8a - Fair Value of Unquoted Debt Securities

Classified as Loans
- Investment in Non-Marketable Equity Securities
- Loans and Receivables - Others
APP. 6
08.12.31
Frequency
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
11a to
11a3 - Loans and Receivables - Others
Monthly

11b to
11b3 - Restructured Loans and Receivables
Monthly

-do-
11c to
11c3 - Loans and Receivables - Others
11d to
11d3 - Gross Loans and Receivables - Others
Counterparty
Quarterly

-do-
Monthly

-do-
11e to
11e3 - Loans and Receivables - Others
Annually

-do-
11f
Monthly

-do-
Quarterly
15 banking days after end

-do-
11g2 - Investment in Debt and Equity Securities

Issued by real estate companies
-do-
-do-
-do-
11g3 - Original Maturity and Earliest Repricing of

-do-
-do-
-do-

Microfinance Loans and Receivables
Classified as to Counterparty
11g1 - Report on Real Estate Exposure
Frequency
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
Monthly

month
SDC1/
Quarterly

-do-
-do-
-do-
-do-
13a - Financial Derivatives Held for Fair Value

Hedge
-do-
-do-
-do-
13b - Financial Derivatives Held for Cash Flow

Hedge
-do-
-do-
-do-
13c - Financial Derivatives Held for Hedges of Net

-
-do-
-do-
-do-
13d - Financial Derivatives Portfolio Hedge of Interest

Rate Risk
-do-
-do-
-do-
14 - Accrued Interest Income/Expenses from

-do-
-do-
-do-
Monthly

-do-
12
- Loans and Receivables Arising from Repurchase

Lending and Borrowing Transactions
12a to
12a3 - Loans and Receivables Arising from Repurchase
Lending and Borrowing Transactions
Matrix of Counterparty and Issuer of
Collateral Securities
13
APP. 6
08.12.31
15 - Equity Investment in Subsidiaries, Associates

and Joint Ventures
Frequency
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
Quarterly

15b - Details of Investment in Subsidiaries,

-do-
-do-
-do-
16 - Bank Premises, Furniture, Fixture and

Equipment
-do-
-do-
-do-
17 - Real and Other Properties Acquired
-do-
-do-
-do-
18 - Deferred Tax Assets and Liabilities
Monthly

-do-
19 - Other Assets
Monthly
-do-
-do-
-do-
-do-
-do-
21 - Liability for Short Position
Quarterly

-do-
22 - Deposit Liabilities
Classified as to Type of Deposit
Monthly

-do-
22a - Deposit Liabilities by Size of Accounts Excluding

Deposits in Foreign Offices/Branches
Quarterly

-do-
23 - Due to Other Banks
Monthly

-do-
-do-
-do-
-do-
15a - Equity Investment in Subsidiaries, Associates

and Joint Venttures- Classified as to Nature
20 - Breakdown of Due from and Due to Head

Office/Branches/Agencies Abroad - Ohilippine
24 - Bills Payable
1
Frequency
APP. 6
08.12.31
Category
Category
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
25 - Bonds Payable, Unsecured Subordinated Debt

and Redeemable Preferred Shares
Quarterly

26 - Fair Value of Financial Liabilities
Annually

-do-
27 - Financial Liabilities Associated with Transferred

Assets
Quarterly
15th baking day after end

-do-
28 - Other Liabilities
Monthly

-do-
29 - Interest Income/Expense from Financial

Instruments
Quarterly

-do-

-do-
-do-
-do-

Maturity Financial Assets and UDSCL
-do-
-do-
-do-
29c - Interest Income from Interbank Loans Receivables
-do-
-do-
-do-
29d to
29d3 - Interest Income from Loans and Receivables Others - Classified as to Status
-do-
-do-
-do-
APP. 6
08.12.31
Form No.
Form No.
MOR Ref.
Submission
Deadline
Submission
Procedure
Quarterly

-do-
-do-
-do-
-do-
-do-
-do-
30c - Interest Expense on Bonds Payable, Unsecured

Subordinated Debt and Redeemable Preferred
Shares
-do-
-do-
-do-
31 - Dividend Income
-do-
-do-
-do-
33 - Gains/(Losses) from Sale/Redemption/

-do-
-do-
-do-
34 - Compensation/Fringe Benefits
-do-
-do-
-do-
35 - Other Administrative Expenses
-do-
-do-
-do-
36 - Depreciation/Amortization Expense
-do-
-do-
-do-
37 - Impairment Loss
-do-
-do-
-do-
38 - Off-Balance Sheet
-do-
-do-
-do-
-do-
-do-
-do-
Report Title
Frequency
29e - Interest Income from Loans and Rceivables

APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

40 and
40a - Repricing- Performing Financial Assets and
Financia Liabilities
-do-
-do-
-do-
41 - Investment in Debt Instruments Issued by LGUs

-do-
-do-
-do-
42 - Disclosure of Due From FCDU/RBU and Due

to FCDU/RBU
-do-
-do-
-do-
Quarterly

-do-
39 and
39a - Residual Maturity
Liabilities
Schedules (Consolidated Report):
- Checks and Other Cash Items
-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
3a - Held for Trading (HFT) Financial Assets

Agreements, Certificates of Assignment
and BorrowingAgreements
-do-
-do-
-do-
-do-
-do-
-do-
APP. 6
08.12.31
Form No.
Submission
Deadline
Submission
Procedure
Quarterly

- Financial Assets Designated at Fair Value through

Profit of Loss
-do-
-do-
-do-
-do-
6a - Breakdown of Available for /sale Financial Assets

Agreements, Certificates of Assignment/Participation
with Recourse, /securities Lending and Borrowing
Agreements
-do-
-do-
6b - Available-For-Sale Financial Assets- Classified

as to Status
-do-
- Held to Maturity (HTM) Financial Asset
-do-
-do-
7a - Held to Maturity Financial Assets Purchased/

Recourse, Securities Lending and Borrowing
Agreements
-do-
-do-
7c - Held to Maturity Financial Assets Classified as

to Status
-do-
7d - Held to Maturity Financial Assets Classified as

to Status
Annually
Quarterly
MOR Ref.
Report Title
Frequency
4a - Derivatives Held for Trading Matrix of Counterparty

and Type of Derivative Contracts
5
6
-do-do-do-
-do-do-do-
1 For TBs which are subsidiaries of UBs and KBs
- Unquoted Debt Securities Classified as Loans
-do-
-do-do30th banking day after end

-do-

-do-
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

8c - Unquoted Debt Securities Classified as Loans

Movements in allowances for Credit Losses
Annually

-do-
Quarterly

-do-
-do-
-do-
-do-
11 - Loans and Receivables - Others
-do-
-do-
-do-
11a - Loans and Receivables - Others

-do-
-do-
-do-
11b - Restructured Loans and Receivable

-do-
-do-
-do-
11c -
Loans and Receivables - Others Movements

in Allowances for Credit Losses
-do-
-do-
-do-
11d -
Gross Loans and Receivables _ Others

Counterparty
-do-
-do-
-do-
11e -
Loans and Receivables-Others

Annually

-do-
11f -
Schedule of Agri/Agra SME, KIL and

Quarterly

-do-
- Investment in Non-Marketable Equity Securities
APP. 6
08.12.31
8b - Unquoted Debt Securities Classified as Loans

Form No.
MOR Ref.
Cir. No. 600
dated 02.04.08
Report Title
Submission
Deadline
Submission
Procedure
Quarterly

Frequency
11g1-
Report on Real Estate Exposure
11g2-
Investment in Debt and Equity Securities

issued by Real Estate Companies
-do-
-do-
-do-
11g3-
Original Maturity and Earliest repricing of the

-do-
-do-
-do-
12

Transactions
-do-
-do-
-do-
12a -

Transactions Matrix of Counterparty and
Issuer of Collateral Securities
-do-
-do-
-do-
13
Fair Value Adjustments in Hedge Accounting
-do-
-do-
-do-
13a -
financial Derivatives Held for Fair Value

Hedge
-do-
-do-
-do-
13b -
Financial Derivatives Held for Cash Flow

Hedge
-do-
-do-
-do-
-do-
-do-
-do-
13c
Financial Derivatives Held for Hedges of

Net Investment in Foreign Operations
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Financial Derivatives Portfolio Hedge of

Interest Rate Risk
Quarterly

14
Accrued Interest Income/Expense from

-do-
-do-
-do-
15

-do-
-do-
-do-
15a

Associates and JOint Ventures-Classified as
to Nature of Business
-do-
-do-
-do-
15b
Details of Investment in Subsidiaries,

-do-
-do-
-do-
16
Bank Premises, Furniture, Fixture and

Equipment
-do-
-do-
-do-
17
Real and Other Properties Acquired
-do-
-do-
-do-
18
Deferred Tax Assets and Liabilities
Annually

-do-
19
Other Assets
Quarterly

-do-
20
Breakdown of Due from and Due to Head

Office/Branches/Agencies Abroad Philippine Branch of a Foregn Bank
-do-
-do-
-do-
-do-
-do-
-do-
Liability for Short Position
-do-
-do-
-do-
21
APP. 6
08.12.31
13d
Form No.
MOR Ref.
Report Title
22
Deposit Liabilities Classified as to Type of

Deposit
22a
23
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

Deposit Liabilities by Size of Accounts

Branches
-do-
-do-
-do-
Due to Other Banks
-do-
-do-
-do-
24
Bills Payable
-do-
-do-
-do-
25
Bonds Payable, Unsecured Subordinated

Debt and Redeemanble Preferred Shares
-do-
-do-
-do-
26
Fair Value of Financial Liabilities
Annually

-do-
27
Financial Liabilities Associated with

Transferred Assets
Quarterly

-do-
28
Other Liabilities
-do-
-do-
-do-
29
Interest Income/Expense from Financial

Instruments
-do-
-do-
-do-
29a
Interest Income from Due from Other

Banks Classified as to Type of Deposits
-do-
-do-
-do-
29b
Interest Income from Held for Trading,

Designated at FVPL, Available for /sale,
Held to Maturity Financial Assets and
Unquoted Debt Securities Classifiesd as
Loans
-do-
-do-
-do-
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

Interest Income from Loans and

Receivables - Others - Classified as to Status
-do-
-do-
-do-
Interest Income from Loans and

Receivabloes Arising from Repurchase
Participation wityh Recourse and
transactions
-do-
-do-
-do-
30a
Interest Expense on Deposit Liabilities
-do-
-do-
-do-
30b
Interest Expense on Bills Payable
-do-
-do-
-do-
30c
Interest Expense on Bonds Payable,

-do-
-do-
-do-
-do-
-do-
-do-
29c
Interest Income from Interbank Loans

Receivables
29d
29e
Dividend Income
-do-
-do-
-do-
32
Gains/(Loss) on Financial Assets and

Liabilities Held for Trading
-do-
-do-
-do-
33
Gains/(Losses) from Salwe/Redemption/

-do-
-do-
-do-
34
Compensation/Fringe Benefits
-do-
-do-
-do-
APP. 6
08.12.31
31
Form No.
MOR Ref.
Submission
Deadline
Submission
Procedure
Quarterly

Report Title
Frequency
35
Other Administrative Expenses
36
Depreciation/Amotization Expense
-do-
-do-
-do-
37
Impairment Loss
-do-
-do-
-do-
38
Off-Balance Sheet
-do-
-do-
-do-
38a
Compliance with Section X347
-do-
-do-
-do-
39
Residual Maturity Performing Financial

Assets and Financial Liabilities
-do-
-do-
-do-
40
Repricing - Performing Financial Assets and

-do-
-do-
-do-
41
Investment in Debt Instruments Issued by

LGUs and Loans Granted to LGUs
-do-
-do-
-do-
42
Due
Disclosure of Due from FCDU/RBU and

to FCDU/RBU
-do-
-do-
-do-
Weekly
6th bankng day after end

of week
By electronic mail to SDC
Control Prooflist ofn the contents of the data sent via

electronic mail, with certification and signature of the
authorized officer of the bank
-do-
Immediately after the

bank has received the
acknowledgment
receipt from the BSP
SDC via facsimile at Fax

No. (02) 52-3461 or hard
copy
via
postal/
messengerial services
Control Prooflist, together with the cover page of the

report
-do-
-do-
of the SES
Consolidated Daily Report of Condition (CDRC)
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
TB Form 1
Schedule
Weekly Inventory List of Govt. Securities Held - On a

Daily Basis
Weekly
Unnumbered
Weekly Inventory List of Government Securities Held

Set Aside for the Intra-Day Liquidity Facility from Week
starting Monday to Friday
-do-
A2
TB Form 1
Schecule 1B
Schedule of Other Non-Risk Assets
Monthly
A1
Unnumbered

Adequacy Ratio Covering Combined Credit Risks
Quarterly
A2
X116.4
(As amended by
Cir. Nos. 503
dated 12.212.05
and 475 dated
02.14.05)
A1
Unnumbered
X116
(Cir. 574 dated
04.10.07)
Solo basis (Head office and branches)
Consolidated basis (parent bank plus subsidiary

Submission
Deadline
end of week
Every Thursday
Submission
Procedure
By electronic mail to
SDC
-do-

end of week wherein
month-end falls
of the SES & SDC
Quarterly

Original copy to
appropriate department
of the SES
-do-

end of quarter
-do-

Adequacy Ratio Covering Combined Credit Risks,
Market Risk and Operational Risk1/
Quarterly

Original copy to SDC

Quarterly

Original copy to SDC
APP. 6
08.12.31
Form No.
A1
Unnumbered
MOR Ref.
Report Title
X602.5
Derivatives Report
Cir No, 594

dated 01.08.08
as amended
by M-2008009 dated
02.27.08
Schedules:
Frequency
Submission
Deadline
Submission
Procedure
Monthly

CMSG cc: SDC

cmsg@bsp.gov.ph
sdcderivatives@bsp.gov.ph
-do-
-do-
Annually or
as directors
are elected


(Stand - Alone - RBU, Stand - Alone - FCDU,
Hybrid)
Report on Trading Gains/Losses) on Financial
Derivatives
A2
Unnumbered
X141.9
(no
prescribed
form)
Acknowledgement receipt of copies of specific duties

and reponsibilities of the board of directors and of a
the same
-do-
TBs with resources of P1.0 billion and above
Quarterly
12th banking days from

sdctb-pbs@bsp.gov.ph

-do-
-do-
Fax to 523-3461 or
523-0230 or via postal/
messengerial services to
SDC
Published Balance Sheet/Consolidated Balance Sheet

(together with the publisher's certificate)
-do-

-do-
Balance sheet/Consolidated Balance Sheet

A2
Form 2B/2B.1
X162.9
(Cir. 576 dated
08.08.07 and
MAB-030 dated
0.04.07)
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
TBs with resources of less than P1.0 billion

A2
A2
Form 2B/2B.1
(Cir.576 dated
08.08.07 and
MAB-030 dated
10.04.07)
Unnumbered
Balance Sheet/Consolidated Balance Sheet

the end of the reference
quarter
sdctb-pbs@bsp.gov.ph
hard copy to SDC

-do-
-do-
Fax to 523-3461 or
523-0230 or via postal/
SDC
Published/Posted Balance Sheet/Consolidated

Balance Sheet (together with publisher's certificate, if
applicabe)
-do-

quarter
-do-
Quarterly

quarter
SDC
sdctb-frpti@bsp.gov.ph
Quarterly

SDC
Financial Reporting Package for Trust Institutions

X425.2
(Cir. 609 dated
05.26.08
as amended by
M-2008-022
dated 06.26.08)
Schedules:
Balance Sheet
A1 to a2 Main Report
B to B2 Details of Investments in Debt and
Equity Securities
C to C2 Details of Loans and Receivables
D to D2 Wealth/Asset/Fund ManagementUITF
E
Other fiduciary Accounts
E1 to E1b
Other fiduciary Services - UITF
Income Statement
Control Prooflist
APP. 6
08.12.31
Quarterly
Form No.
MOR Ref.
Cir. No. 607
dated 04.30.08
as amended by
M-2008-021
dated 06.16.08
A2
Unnumbered
A2
Unnumbered Cir. No. 607 dated
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Monthly

SDC
sdctb-micro@bsp.gov.ph
Quarterly

-do-
04.30.08, as
amended by M2008-021 dated
06.16.08
A2
Unnumbered X171.5
Cir. No. 620 dated
09.03.08
Self-Assesment and Certification of compliance with

Rules and Regulations on Bank Protection/Updated
Security Program
Annually
On or before 30 January
of the SES
A2
TB Form
20A
Report on Peso-Denominated Common Trust Funds

and Other Similarly Managed Funds (for TBs engaged
in Trust and Other fiduciary Business, and submitting
TB form 1 in diskette form)
Weekly

SDC Appropriate
X405.9
Control Prooflist
A2
TB Form
20B
Immediately after receipt

of BSP acknowledgment
receipt
Fax - SDC

report
Weekly

SDC
Report on Trust and Other Fuduciary Accounts (TOFA)

- Others
-do-
3rd banking day after end

of reference week
SDC
of the SES
Immediately after receipt

of BSP acknowlegment
Fax - SDC

SDC
Control Prooflist
report
-do-
APP. 6
08.12.31
Category
Category
A2
Form No.
TB Form 3
MOR Ref.
X162
Report Title
Statement of Condition (By Banking Unit)
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

of the SES & SDC
-do-
-do-
SDC
of the SES
(As amended by
MAB dated
12.30.03)
Schedules:
3A
- Breakdown of Due from /Due to Other Banks
and Deposit Liabilities - Banks
A3
TB Form 6
X162
(Revised Dec.
2003 per MAB
dated 12.30.03)
3B
- Breakdown of Deposits (Other than Banks)
3C
- Selected Financial Accounts (Only for

extension offices, savings agencies or money
shops not maintaining separate books; in
lieu of TB Form 3 and its other schecules)
3D
- Aging of Loans and Selected Receivable

(Revised December 2003 per MAB dated
12.30.03)
3E
- Loans-to-Deposits Ratio
Supplementary Information
Statement of Income and Expenses by Banking Unit
APP. 6
08.12.31
* A report is not required and no transfers were effected during the month.
A3
Form No.
Unnumbered
MOR Ref.
X393
(Cir. 613 dated
06.18.08, as
amended by M2008-032 dated
10.31.08)
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Semestral

of the SES & SDC
Consolidated List of Stockholders
Annually
-do-
Changes in the List of Stockholders and their

Stockholdings
Quarterly

Schedules:
Selected Balance sheet and Income Statement
Accounts
Breakdown of Deposit Liabilities
Reconciling Items Outstanding for More than Six (6)
Months on the Due From/Due to Head Office, Branches
and Agencies Account
TB Form 7
X162.7
Cir. 533 dated
06.19.06
-do-
A3
TB Form 8
X335
X409.3
Consolidated Report on Compliance with Agregate

Ceiling on Credit Accommodations to Directors/Officers/
Stockholders/Related Interest
Quarterly

of the SES & SDC
A3
TB Form 9
Page 1
X335
X409.3
Consolidated Report on Compliance with Agregate

Ceiling on Credit Accommodations to Directors/Officers/
Stockholders/Related Interest
Semestral

of the SES & SDC
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
A3
Page2
X338.3
X339.4
Revised June
2005 per Cir.
487 dated
06.03.05
Availments of Financial Assistance to Officers and

Employees under Banko sentral Approved Plan
Semestral

end
of
reference
semester
of the SES & SDC
A3
TB Form 11
X342.6
(As amended
by M-2008035 dated
11.19.08, Cir.
625 dated
10.14.08, and
MAB dated
4.28.03)

Allocation Required under R.A. 6977 (As amended
by R.A. Nos. 8289 and 9501)
Quarterly

By electronic mail to
SDC -sdctb-sme@ bsp.gov
Schedules:
Purposes of Detemining Amount of
1A-1
Wholesale Lending of a Bank to conduit

NBFIs w/o QB Authority Other Than Those
for On-Lending to MSMEs
1A-2
Loans Granted Under Special Financing

Program Other Than for MSMEs
1A-3

Bank
APP. 6
08.12.31
1A
A3
Form No.
MOR Ref.
TB Form 12 X341.9
(Revised
December
2004 per
MAB dated
9.8.04
Report Title
1B
Details of Eligible Investments for

Compliance with the Required Credit
Allocation for MSMEs
1B-1

Bank
1B-2
Wholesale Lending or Rediscounting

Facility Granted to Participating Financial
Institutions for On-Lending to MSMEs other
than to BMBEs
Reconciliation of Loans Granted to MSMEs

as Reported Under Schedules 1B, 1B-1 and
2 and FRP Banlance of Microfinance and
SME Loans
Frequency
Submission
Deadline
Submission
Procedure
Control Prooflist
Quarterly

SDC

Funds generated Which Were Set Aside for Agrarian
Reform/Other Argicultural Credit (Compliance with PD
717)
Quarterly

By electronic mail to SDC/

Diskette/hardcopy at
sdctb-agra@bsp.gov.ph
- solo basis (head office and branches)
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
- on a groupwide basis (based on consolidated

financial statements of investor-financial institution or
parent bank and its subsidiaries/affiliates) to be
supported by the individual reports of the bank and
its subsidiaries duly signed by each bank's authorized
signatory (Compliance on a groupwide basis allowed
by Cir. 252 dated 7-18-00)
A
- Total collectons from Loan Portfolio as of

31 May 1975
- Direct Loans to Farmers' Associations or

Cooperatives for High Value Crops Projects
under Sec. 8 of R.A. 7900
- Utilization of 10% Loanable Funds

Generated for Agrarian Reform Credit
- Utilization of 15% Loanable Funds

Generated for Other Agricultural Credit
Loans
- Development Loans Incentives under

Section 9 of R.A. 7721
- Report on Compliance with P.D. 717

under Section 11 R.A. 7835
- Report on Loans Granted to BMBEs

(Revised per MAB dated 4.28.03)
APP. 6
08.12.31
Control Prooflist, notarized and signed by the

Form No.
MOR Ref.
Submission
Deadline
Submission
Procedure

SDC
of the SES
Report on Investment Management Activities
-do-
-do-
-do-
X162
( CL-2007050 dated
10.04.07 CL2007-059
dated
11.28.07)
-do-

X162
(Revised
August 2003
per CL dated
8.6.03)
Report on Credit and Equity Exposures to

Individuas/Groups/Companies Aggregating P1M
and above
-do-
-do-
-do-
Control Prooflist, notarized and signed by the

-do-
-do-
-do-
-do-

SDC
of the SES
Annually

the close of the calendar
or fiscal year

of SES
TB Form 13
X425.2
Report on Trust and Other Fiduciary Business and

A3
TB Form 14
X425.2
A3
Unnumbered
TB Form 15
Q06-TB
(formerly TB
Form 16)
X162.6
Report on Reconciling Items Outstanding for More

than six Months in the "Due from/Due to Head
Office, Branches and Agencies" accounts (by
Banking Unit)
Unnumbered
X166
Financial Audit Report - Bank Proper
Solo and consolidated basis
Frequency
Quarterly
A3
Report Title
a.
Audited Financial Statements
b.

Original to SDC
APP. 6
08.12.31
Category
Category
Form No.
X426.2
Unnumbered
X166
Unnumbered
X426.2
A2
Submission
Procedure
Annually
120th calendar day

after the close of the
calendar or fiscal year

of the SES
-do-

receipt of the report
-do-
Annual Audit Report2/ - Bank Proper
-do-
-do-
-do-
a.
-do-
-do-
-do-
b.
Opinion of the Auditior together with

-do-
-do-
-do-
App. 52a
(Revised May
2002 as
amended by
Cir. No. 612
dated
06.03.08
Report Title
Financial Audit Report - Trust Department
a.
b.

attachments listed in appendix 61
Frequency
Annual Audit Report2/ - Trust Department

a.
-do-
-do-
-do-
b.

-do-
-do-
-do-
As
transaction
occurs

the occurrence of the
transaction
Report on Suspicious Transactions
Solo and consolidated basis

for banks under the current jurisdiction of the BSP and COA
Original and duplicate Anti-Money Laundering

Council (AMLC)
APP. 6
08.12.31
Unnumbered
Submission
Deadline
MOR Ref.
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
As
transaction
occurs

transaction
Original and duplicate Anti-Money

Laundering Council
(AMLC)
A2
Unnumbered App. 52a

(Revised May
2002, as
amended by
Cir. No. 612
dated
06.03.08)
Covered Transaction Report
A2
Unnumbered App. 52a

(Cir. 279 dated
4.2.01)
Certificate on Compliance with Anti-Money

Annually


of the SES
Unnumbered X262.3
Certification of Compliance with Secton 55.4 of R.A.

No. 8791
Semestral

of June and December
-do-
Unnumbered X501.3
(Revised
September
2003 per Cir.
403 dated
9.19.03)
Certification on Funds Borrowed from FCDU/

EFCDU
Monthly

-do-
Unnumbered X235.12
(Cir 467 dated
01.10.05)
Report on Undocumented Repurchase Agreements
As
transaction
occurs

of the SES
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Unnumbered
X235.12
(Cir 467
dated
01.10.05)
Notarized Cerification that the bank did not enter

into Repurchase Agreement covering Government
Securities, Commercial Papers and Other
Negotiable securities or instruments that are not
documented.
SEC Form
(MAB dated
9.02.05)
SES II Form 10
X334
Transmittal of Board Resolution/Written Approval

on Credit Accommodations to DOSRI in
Compliance with Sec. 36, R.A. 8791, as amended
Unnumbered
X328.5
(Cir. 560
dated
01.31.07)
SES II Form 12
(NP06-TB)
SES II Form 14
Frequency
Submission
Deadline
Submission
Procedure
Semestral

semester
of the SES
Annual

annual stockholders'
meeting
Drop box-SEC Central

Receiving Section
As any
direct or
indirect
loan to any
DOSRI is
Approved

date of approval
of the SES
Transmittal of Board Resolution/Written Approval

On Credit Accommodations to Subsidiaries and/or
Affiliates in Compliance with Sec. X328.5
As loan to
subsidiaries
and/or
affiliates is
approved
-do-
Original and duplicate Appropriate deparment

of the SES
X162.5
X162.15
Sworn Statements on Real Estate/Chattel

Transactions to Directors, Officers and Stockholders
As
transacton
is approved
Within 10 banking
days from approval of
transaction
X156.2
(NP04-TB
New Schedule of Banking Days/Hours
As changes
occur
7th banking day prior

to effectivity of the
change
of the SES
-do-
APP. 6
08.12.31
Form No.
MOR Ref.
Report Title
SES II For 15
(NP08-TB)
X144
As amended
by M-2008024 dated
07.31.08
Biographical Data of Directors/Officers

- If submitted in diskette form - Notarized first page of
each of the directors'/officers' bio-data saved in
diskette and control prooflist
- If sent by electronic mail - Notarized first page of
Biographical Data or Notarized list of names of
Directors/Officers whose Biographical Data were
submitted thru electronic mail to be faxed to SDC
MAAB dated
09.02.05
Certification under oath of independent directors

that he/she is an independent director as defined
under Subsection X141.10 and that all the
information thereby supplied are true and correct
Cir. 513 dated

02.10.06
Verified statement of Director/officer that he/she has

all the aforesaid qualifictions and none of the
disqualifications
X162.4
(Rev. October
2007 per Cir.
587 dated
10.26.07;
June 2005 per
Cir. 486 dated
06.01.05)
Report on Crimes and Losses
SES II Form 16
Unnumbered
(no prescribed
form)
X143.4
Report on Disqualification of Director/Officer
SES Form 6H
(CBP 7-16-21)
Revised
X306.5
Notice/Application for Write-off of Loans, Other

Credit Accommodations, Advances and Other
Assets
Frequency
Submission
Deadline
Submission
Procedure
After
election or
appointment
and as
changes
occur

the date of the meeting
of the board of
directors in which the
elected or appointed
Electronic mail or
diskette form to SDC or
if hard copy Original to
of the SES, Duplicate to
SDC
As crime/
incident
occurs

calendar days from
knowledge of crime/
twenty (20) calendar
days from termination
of examination.
SDC and SITD
As
disqualification
occurs

BOD
of the SES
As write-off
occurs
Within 30 days after

every write-off
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
SES II Form 26
X162.3
Information/Documents Required under

Appendices 7 & 8 (MOR)
Only once;
as change
occurs

date of change
of the SES
SES II Form 27
X162.1
Specimen Signature of Authorized Signatories and

Board Resolution designating Authorized
Signatories
As change
occurs
3rd banking day from

date of resolution
of the SES & SDC
Unnumbered
(NP09-TB)
X144
List of Members of the Board of Directors and

Officers
As election
occurs

annual board election
-do-
X151.8
X151.9
Notice of transfer of branches/voluntary closure of

branches
As transfer
occurs

date of transter
X153.4
Notice of Actual Date of Opening a Branch
As it occurs

opening
X565
Conversion/Transfer of FCDU Loans to RBU*

(Report is not required when no transfers were
effected during the month)
Monthly

Unnumbered
As
transaction
occur
X409.16
(f)
(M-2008-005
dated
02.04.08)
Disclosure Statement on SPV Transactions
Quarterly
-do-do-do-

knowledge of
transactions
-do-
15 banking days after

SDC
APP. 6
08.12.31
Form No.
FX Form 1A
(Formerly FED
Form 1)
MOR Ref.
X162.2
(as amended
by Cir.No.284
dated
06.04.01)
Report Title
Consolidated Foreign Exchange Assets and
Liabilities
Submission
Deadline
Submission
Procedure
Monthly

Appropriate
& SDC
Monthly
Next banking day

following the prescribed
date of submission of the
report and schedules
Frequency
Schedules:
Unnumbered
- Monthly Summary of FX Acquisitions/

Dispositions
- Interbank Transactions
- FX Acquisition from Loans (of Resident

Clients)
- FX Disposition for Loans (of Resident

Clients)
- Other Current Accounts and Transfers

Acquisition and Disposition
- Investments Acquisition and Disposition
- Other Foreign Exchange Acquisitions/

Dispositions
- Export Proceeds
Certification as to the veracity and accuracy of the

Consolidated Report on FX assets and Liabilities and
all supporting schedules, to be signed by an officer
of the bank with the rank of AVP or equivalent rank
DES
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
Monthly for
loans
granted;
quarterly for
loans
outstanding

end of reference period
the SES
Daily
A daily survey report

only for banks notified
by DER
the SES
Report on Volume of Money Market Transactions
As
transacton
occurs

transaction occurs
DES
X425.3
As
transaction
occurs
30th day from date of

the bond flotation by
the LGU
-do-
X501.4
Foreign Currency Cover
Monthly

ID
Report on Bank Liabilities to Non-Residents

[formerly, Schedule of Foreign Exchange Liabilities
to Non-Residents (In Original Currency)] (CL dated
2.18.03)
Monthly

end reference month
id-form5@bsp.gov.ph
Bank Certification
Monthly
-do-
ID
Monthly FX Sales by Authorized Agent Banks

(AABs) for Outward Investments
Monthly

ID
RS Form 1 (TB)
Summary Report of Transactons on TB Loans by

Banking Unit
RS
Form 2A-TB
Survey on the Volume and Weighted Average

Interest Rates on Deposits
RS Form 1B (5-17-27)
DER (TR-D01-TB)
Unnumbered
Frequency
ID Reports
A2
M01-TB
(For FCDUs)
A2
ID Form 5
BSP-ID Form No.

1 S-2008(CL- 2008
-004 dated 11 Jan.
2008)
APP. 6
08.12.31
A3
Form No.
IOS Form 4
Unnumbered
Unnumbered
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Consolidated Report on Loans Granted by FCDUs
Monthly


X602.21
(As amended
by Cir. No.
591 dated
12.27.07)
Report on FX Swaps with Customers1 where 1st Leg

is a Purchase of FX Against Pesos (For TBs with
derivatives License)
Monthly
5th banking days after

ID @ e-mail address:
iod@bsp.gov.ph
SDC @ e-mail address:
(M-2008-019
dated
05.03.08)
(M-2008-019
dated
05.03.08)

Weekly

SDC
sdc-ndf@bsp.gov.ph
cc: Treasury Dept.
fx-omo@bsp.gov.ph
(M-2008-019
dated
05.03.08)
Control Prooflist
Weekly

(CL-2008-003
dated
01.11.08)
Report on Sale of Foreign Currency (FC) for Advance

Payment of Importations up to $100,000.00
Monthly
Within the first 5 banking

days of the month
succeeding the date of
foreign exchange sale
ID
(Cl-2008-003
dated
01.11.08)
Report on Puchase of Foreign Currency (FC) from

Refund of Advance Payment of Importations up to
$100,000.00
Monthly
Within the first 5 days of

the month succeeding
the receipt of the refund
ID
SDC sdcndf@bsp.gov.ph. cc:

Treasury Dept. fxomo@bsp.gov.ph.
APP. 6
08.12.31
Category
C. RBs/Coop Banks
Category
A-1
Form No.
MOR Ref.
Unnumbered X162.16
(Cir. No. 512 dated
02.03.06,as amended
by M-2008-012
dated 03.14.08,
M-2008-011 dated
03.07.08, M-026
dated 09.20.07, M015 dated 05.28.07
Cir.568 dated
05.08.07, M-006
dated 07.07.06 and
MAB dated 03.07.06)
Report Title
Frequency
Submission
Deadline
Submission
Procedure

Balance Sheet (FRP):
Monthly

sdcrb-frp@bsp.gov.ph

schedules)2/
Quarterly

-do-
Quarterly

-do-
-do-

-do-
Monthly

-do-
-do-
-do-

schedules)1/
- Checks and Other Cash Items
-do-
-do-
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461or
hard copy via postal/messengerial services.
APP. 6
08.12.31
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
3a - Breakdown of Held for Trading (HFT) Financial

Assets Purchased/Sold/Lent Under
Agreements, Cerificates of Assignment/
Quarterly

-
Quarterly

Monthly

-do-
4a - Derivatives Held for Trading Matrix of

Counterparty and Type of Derivative Contracts
5
- Financial Assets Designated at Fair Value

-do-
-do-
-do-
-do-
-do-
-do-
Quarterly

-do-
-do-
-do-
-do-
Annually

-do-
Monthly

-do-

and Borrowing agreements
6b - Available-For-Sale Financial
to
Assets-Classified as to Status
6b3
6c - Available-For-Sale
to
Movements in Allowances for
6c3 Credit Losses
7
- Held to Maturity (HTM) Financial Asset
FA
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Submission
Deadline
Submission
Procedure
Report Title
Frequency
7a - Held to Maturity Financial Assets

Agreements, Cerificates of Assignment/
Quarterly
7b - Fair Value of Held to Mturity (HTM) Financial

Asset
Annually


to
to Status
7c3
Quarterly

7d to 7d3
Held to Maturity Financial Assets

Movements in Allowances for Credit
Annually

Monthly

8a
Fair Value of Unquoted Debt Securities

Classified as Loans
Annually

-do-
8b to 8b3

Quarterly

-do-
8c to 8c3

Annually

-do-

Securities
Monthly

-do-
10
Interbank Loans Receivables
-do-
-do-
-do-
11
-do-
-do-
-do-

-do-do-
-do-do-do-
APP. 6
08.12.31
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
11a to - Loans and Receivables - Others

11a3
Monthly

11b to - Restructured Loans and Receivables

11b3
Monthly

-do-
11c to - Loans and Receivables - Others

11c3
Quarterly

-do-
11d to - Gross Loans and Receivables - Others

11d3
counterparty
Monthly

11e to - Loans and Receivables - Others

11e
3
Annually

-do-
11f

Monthly

-do-
12
Monthly

-do-

Transactions
-do-
APP. 6
08.12.31
Category
Category
MOR Ref.
Submission
Deadline
Submission
Procedure
Report Title
Frequency
12a to
12a3 - Loans and Receivables Arising from Repurchase
Lending and Borrowing Transactions Matrix
of Counterparty and Issuer of Collateral
Securities
Quarterly

13
Quarterly

-do-
13a
- Financial Derivatives Held for Fair Value

Hedge
-do-
-do-
-do-
13b
- Financial Derivatives Held for Cash Flow

Hedge
-do-
-do-
-do-
13c
- Financial Derivatives Held for Hedges of Net

-do-
-do-
-do-
13d
- Financial Derivatives Portfolio Hedge of

Interest Rate Risk
-do-
-do-
-do-
14
- Accrued Interest Income/Expense from

-do-

-do-
15
- Equity Investment in Subsidiaries, Associates

and Joint Ventures
Monthly

-do-
APP. 6
08.12.31
Form No.
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
15a
- Equity Investment in Subsidiaries, Associates

and Joint Ventures- Classified as to Nature of
Business
Quarterly

15b
- Details of Investment in Subsidiaries,

-do-
-do-
-do-
16
- Bank Premises, Furniture, Fixture and

Equipment
-do-
-do-
-do-
17
- Real and Other Properties Acquired
Quarterly
-do-
-do-
18
- Deferred Tax Assets and Liabilities
Monthly

-do-
19
- Other Assets
Monthly

-do-
20
- Breakdown of Due from and Due to Head

Office/Branches/Agencies Abroad Philippine Branch of a Foreign Bank
-do-
-do-
-do-
21
- Liability for Short Position
Quarterly

-do-
22
Classified as to type of Deposit
Monthly

-do-
Quarterly

-do-

Branches
Frequency
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
23
- Due to Other Banks
24
- Bills Payable
25
Frequency
Submission
Deadline
Submission
Procedure
Monthly

-do-
-do-
-do-
- Bonds Payable, Unsecured Subordinated

Quarterly

-do-
26
- Fair Value of Financial Liabilities
Monthly

-do-
27
- Financial Liabilities Associated with

Transferred Assets
Qurterly

-do-
28
- Other Liabilities
Monthly

-do-
29
- Interest Income/Expense from Financial

Instruments
Quarterly

-do-do-

-do-
-do-

Designated at FVPL, Available for Sale, Held
to Maturity Financial Assets and UDSCL
-do-
-do-

Receivables
-do-
-do-
-do-
29d to
29d3 - Interest Income from Loans and Receivables Others - Classified as to Status
-do-
-do-
-do-
-do-
APP. 6
08.12.31
-do-
Form No.
MOR Ref.
Submission
Deadline
Submission
Procedure
Report Title
Frequency

Quarterly

-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
Subordinated Debt and RedeemablePreferred

Shares
- Dividend Income
-do-
-do-
-do-
-do-
-do-
-do-
32
- Gains/(Losses) on Financial Assets and

Liabilities Held for Trading
-do-
-do-
-do-
33
- Gains/(Losses) from Sale/Redemption/

-do-
-do-
-do-
34
- Compensation/Fringe Benefits
-do-
-do-
-do-
35
- Other Administrative Expenses
-do-
-do-
-do-
36
- Depreciation/Amortization Expense
-do-
-do-
-do-
37
- Impairment Loss
-do-
-do-
-do-
38
- Off-Balance Sheet
-do-
-do-
-do-
-do-
-do-
-do-
30c - Interest
Expense
on
Bonds
Payable,
Unsecured
31
38a - Compliance with Secton X347
APP. 6
08.12.31
Category
Category
Form No.
Submission
Deadline
Submission
Procedure
Quarterly

40 and
40a - Repricing- Performing Financial Assets and
-do-
-do-
-do-
41
- Investment in Debt Instruments Issued by LGUs

-do-
-do-
-do-
42
- Disclosure of Due From FCDU/RBU and Due

To FCDU/RBU
-do-
-do-
-do-
Quarterly

-do-
2 - Due from Other Banks
-do-
-do-
-do-
3 - Financial Assets Held for Trading
-do-
-do-
3a - Breakdown of Held for Trading (HFT) Financial

-do-
-do-
4 - Derivatives Held for Trading (HFT)
-do-
MOR Ref.
Report Title
Frequency
39 and
39a - Residual Maturity
Liabilities
Schedules (consolidated Report):

1 - Checks and Other cash Items
-do-
-do-
-do-
APP. 6
08.12.31
-do-
Form No.
MOR Ref.
Submission
Procedure
Frequency
4a - Derivatives Held for Trading Matrix of Counterparty

and Type of Derivative Contracts
Quarterly

5 - Financial Assets Dexignated at Fair Value

-do-
-do-
-do-
6 - Available-For-Sale Financial Assets
-do-
-do-
-do-

Participation with recourse, Securities Lending
-do-
-do-
-do-
6b -Available-For-Sale Financial Assets-Classified as

to Status
-do-
-do-
-do-
6c - Available-For-Sale financial Assets Movements

in allowances for Credit Losses
Annually

-do-
7 - Held to Maturity (HTM) Financial Asset

Control Prooflist
Quarterly
-do-
-do-
-do-
-do-
-do-
7a - Held to Maturity Financial Assets Purchase/

recourse, Securities Lending and Borrowing
Agreements
7b - Fair value of Held to Maturity (HTM) financial
Assets
Submission
Deadline
Report Title
-do-
Annually

-do-
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
Quarterly

7d - Held to Maturity Financial assets Movements

in allownaces for Credit Losses
Annually

-do-
8 - Unquoted Debt Securities Classified as Loans
Quarterly

-do-
8a - Fair value of Unquoted Debt

Securities classified as to Status
Annually

-do-
8b - Unquoted Debt Securities

Classified as Loans Classified as to Status
Quarterly

-do-
8c - Unquoted Debt Securities Classified as Loans

Movements in allowances for Credit Loans
Annually

-do-
9 - Investment in Non-Marketable Equity

Securities
Quarterly

-do-
-do-
-do-
-do-
11 - Loans and Receivables - Others
-do-
-do-
-do-
11a- Loans and Receivables - Others Classified as

to Status
-do-
-do-
-do-
Quarterly

-do-
APP. 6
08.12.31

to Status
11b- Restructured Loans and Receivables classified

as to Status
Frequency
Form No.
MOR Ref.
Submission
Deadline
Submission
Procedure
Report Title
Frequency
11c- Loans and Receivables - Others Movements in

Allowances for Credit Losses
Quarterly

11d- Gross Loans and Receivables - Others

Counterparty
-do-
-do-
-do-
11f - Schedule of Agri/Agra SME, DIL and

Microfinance Loans and Receivables Clssified
as to Counterparty
-do-
-do-
-do-
12 - Loans and Receivables Arising from

Repurchase Agreements, certificates of
Assignment/Participation with recourse and
-do-
-do-
-do-
12a - Loans and Receivables Arising from

Matrix of Counterparty and Issuer of Collateral
Securities
-do-
-do-
-do-
13 - Fair Value Adjustments in Hedge
-do-
-do-
-do-
13a - Financial Derivatives Held for Fair Value Hedge
-do-
-do-
-do-
13b - Financial Derivatives Held for Cash Flow Hedge
-do-
-do-
-do-
13c - Financial Derivatives Held for Hedges of Net

-do-
-do-
-do-
APP. 6
08.12.31
Category
Category
Form No.
Submission
Deadline
Submission
Procedure
Quarterly

14 - Accrued Interest Income/Expense from

-do-
-do-
-do-
15 - Equity Investment in Subsidiaries, Associates

and Joint Ventures
-do-
-do-
-do-
15a - Equity Investment in Susidiaries, Associates and

Joint Ventures-Classified as to Nature of
Business
-do-
-do-
-do-
-do-
-do-
-do-
MOR Ref.
Report Title
13d - Financial Derivatives Portfolio Hedge of Interest
Rate Risk
Frequency
15b - Details of Investment in Subsidiaries, Associates

and Joint Ventures
-do-do-
-do-do-
16 - Bank Premises, Furniture, Fixture and

Equipment
-do-
17 - Real and Other Properties Acquired
-do-
-do-
-do-
-do
-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
19 - Other Assets
20 - Breakdown of Due from and Due to Head
Office/Branches/Agencies Abroad - Philippines
21 - Liability for Short Position
APP. 6
08.12.31
22 - Deposit Liabilities Classified as to Type of

Deposit
Form No.
MOR Ref.
Submission
Deadline
Submission
Procedure
Report Title
Frequency

Excluding Deposits in foreign Offices/Branches
Quarterly

23 - Due to Other Banks
-do-
-do-
-do-
24 - Bills Payable
-do-
-do-
-do-
25 - Bonds Payable, Unsecured Subordinated Debt

and Redeemable Preferred Shares
-do-
-do-
-do-
26 - Fair Value of financial Liabilities
Annually

-do-
27 - Financial Liabilities Associated with Transferred

Assets
Quarterly

-do-
28 - Other Liabilities
-do-
-do-
-do-
29 - Interest Income/Expense from Financial

Instrument
-do-
-do-
-do-
29a - Interest Income from due from Other Banks

-do-
-do-
-do-

Maturity Financial Assets and Unquoted Debt
Securities Classified as Loans
-do-
-do-
-do-

Receivables
-do-
-do-
-do-
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461or hard
APP. 6
08.12.31
Category
Category
MOR Ref.
Submission
Deadline
Submission
Procedure
Quarterly


Certificates of Assignmnet/Participation with
Borrowing transactions
-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
-do-
30c - Interest Expense on Bonds Payable, Unsecured

Subordinated Debt and Redeemable Preferred
Shares
-do-
-do-
-do-
31 - Dividend Income
-do-
-do-
-do-
32 - Gains/(Loss) on Financial Assets and Liabilities

Held for trading
-do-
-do-
-do-
33 - Gains/(Losses) from Sale/Redemption/

Derecognition of Non-Trading Financial Assets
and Liabilities
-do-
-do-
-do-
-do-
-do-
-do-
34 - Compensation/Fringe Benefits
-do-
-do-
-do-
Report Title
Frequency
29d - Interest Income from Loans and Receivables Others - Classified as to Status
Control Prooflist duly signed by the authorized official of the reporting bank and a Notary Public, shall be within the prescribed submission deadlines to SDC via Fax No. (02) 523-3461or hard
APP. 6
08.12.31
Form No.
Form No.
MOR Ref.
Report Title
35 - Other Administrative Expenses
For RBs which are subsidiaries of UBs/KBs
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

36 - Depreciation/Amotization Expense
-do-
-do-
-do-
37 - Impairment Loss
-do-
-do-
-do-
38 - Off-Balance Sheet
-do-
-do-
-do-
-do-
-do-
-do-
39 - Residual Maturity Performing Financial Assets

and Financial Liabilities
-do-
-do-
-do-
40 - Repricing - Performing Financial Assets and

-do-
-do-
-do-
41 - Investment in Debt Instruments Issued by LGUs

-do-
-do-
-do-
42 - disclosure of Due From FCDU/RBU and Due

To FCDU/RBU
-do-
-do-
-do-
APP. 6
08.12.31
Category
Category
A1
Form No.
Unnumbered
MOR Ref.
X602.5
Circular No. 594

dated 01.08.08
and M-2008-009
dated 02.27.08
Report Title
Derivatives Report
Submission
Deadline
Submission
Procedure
Monthly

CMSG
cc:
SDC
cmsg@bsp.gov.ph. sdcderivatives@bsp.gov.ph.
Monthly

Frequency
Schedules:
(Stand - Alone - RBU, Stand - Alone - FCDU, Hybrid)
Report on Trading (Gains/Losses) on Financial
Derivatives
Control Prooflist
A-1
Unnumbered
X116.4
(As amended by
Cir. Nos. 503
dated 12.22.05
and 475 dated
02.14.05)
Computation of the Adjusted Risk-based Capital

Adequacy Ratio Covering Combined Credit Risks
for stand alone RBs
Quarterly

Appropriate
- Consolidated basis (parent bank plus subsidiary

-do-

-do-
- Computation of the Adjusted Risk-Based Capital

Adequacy Ratio Covering Combined Credit Risks,
Market Risk and Operational Risk1
-do-
- Solo basis (Head office and branches)
A-1
Unnumbered X116.4
APP. 6
08.12.31
(Cir. 574 dated

07.10.07)
SDC
Form No.
MOR Ref.
Report Title
A1
X116
A1
X116

financial allied undertakings, but excluding insurance
companies)
Frequency
Submission
Deadline
Submission
Procedure
Quarterly

SDC
-do-

-do-
A2
RB/COB
Form1
X116.2
Consolidated Daily Report of Condition (CDRC)
Weekly

-do-
A2
RB/COB
Form 2A
X162
Rev. 2004 per
MAB dated
05.21.04
Consolidated Statement of Condition
Monthly

cc: Mail to SDC

of the SES
-do-
-do-
-do-
Schedules:
1
- Due from/Due to Other Banks
2
- Loan Portfolio and Other
Accommodations
2.1 - Loan Portfloio and Other
Accommodations (Borrowings of Local
Government Units)
2.2 - Schedule of Microfinance Loans
3
- Investments in Bonds and Other Debt
Instruments
3.1 - Investments in Bonds and Other Debt
Instruments (Govenment Issue - Local
Government Units)
3A - Equity Investments
4
- Fixed and Other Assets
5
6
- Bills Payable
Control Prooflist
APP. 6
08.12.31
Category
Category
Form No.
A-2
Unnumbered
(no prescribed
form)
A-2
Form 2B/2B.1
MOR Ref.
X141.9
X162.9
(Cir. 576 dated
08.08.07 and
MAB-2007-030
dated 10.04.07)
Submission
Deadline
Report Title
Frequency
Acknowledgment receipt of copies of specific duties

and responsibilities of the board of directors and of a
the same
Annually or
as directors
are elected

date of election
Quarterly
12 banking days from

RBs with resources of P1.0 billion and above

Form
2B/2B.1
(Cir. 576
dated
08.08.07 and
MAB-2007030 dated
10.04.07)

Fax to 523-3461 or 5230230 or via postal/

SDC

sdcrb-pbs@bsp.gov.ph
hard copy to SDC

SDC

SDC
RBs with resources of less than P1.0 billion

-do-

aurthorized official of the reporting
20 banking
days from
the date of
the reference
quarter

SDC
APP. 6
08.12.31

(together with the publisher's certificate if applicable)
sdcrb-pbs@bsp.gov.ph
hard copy to SDC
Fax to 523-3461 or
523-0230

(together with the publisher's certificate)
A-2
Submission
Procedure
A2
Form No.
Unnumbered
Submission
Deadline
Submission
Procedure
Quarterly

quarter
SDC
sdcrb-frpti@bsp.gov.ph
Control Prooflist
Quarterly

SDC
sdcrb-frpti@bsp.gov.ph
Monthly

SDC
sdcrb-micro@bsp.gov.ph
MOR Ref.
X425.2
Cir. 609 dated
05.26.08 and
M-2008-022
dated 06.26.08
Report Title
Financial Reporting Package for Trust Institution1
Frequency
Schedules:
Balance Sheet
A1 to A2
Main Report
B to B2
Details of Investments in Debt and

Equity Securities
C to D2
Details of Loans and Receivables
D to D2
Wealth/Asset/Fund Management UITF
Other Fiduciary Accounts
E1 to E1b
Other fiduciary Services - UITF
Income Statement
A2
Unnumbered
X162
Cir. 607
dated
04.30.08 and
M-2008-021
dated
06.16.08
APP. 6
08.12.31
Category
Category
A2
Form No.
Unnumbered
A2
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
X162
Cir. 607 dated
04.30.08 and
M-2008-021
dated
06.16.08
Quarterly

SDC
sdcrb-micro@bsp.gov.ph
X171.5
Cir. No. 620
dated
09.03.08
Self-Assesment and Certification of Compliance with

Rules and Regulations on Bank Protection/Updated
Security Program
Annually
On or before 30 January
the SES
RB/COB
Form 7
X254
Report on Microfinance Transactions
Monthly

of reference month
Original - DLC/BSPRLC
A2
RB/COB
Form 7A
X254
Weekly Report on Required and Available Reserves

Against Deposit Liabilities (To be replaced with CDRC
- Form 1)
Weekly

of reference week
Electronic mail to SDC
A2
RB/COB
Form 8
X240.8
Control Prooflist of WRRAR Against Deposit Liabilities
-do-
-do-
-do-
A2
Unnumbered
(Rev. May
2002)
X240.6
Government Funds Held/Compliance with Liquidity

Floor Requirement
Quarterly

Duplicate - SDC
A2
Unnumbered
App. 52a
Rev. May
2002 as
amended by
cir. no. 612
dated
06.13.08
Covered Transaction Report (CTR)
As
transaction
occurs

transaction
Original and duplicate Anti - Money Laundering

Council (AMLC)
APP. 6
08.12.31
A2
Form No.
A2
Unnumbered
App. 52a
Cir. 279
dated
04.02.01
Suspicious Transaction Report (STR)
A1
RB/COB
Form 9
App.52a
Certification of Compliance with Anti - Money

A3
RB/COB
Form 2B
X162
(As amended
by MAB
dated
05.21.04)
A3
A3
RB/COB
Form 3A
RB/COB
MOR Ref.
X162
(As amended
by CL-022
dated
08.29.06)
X162
(As amended
by MABdated
05.21.04)
Report Title
Statement of condition (by Banking Unit)

- including ROPA by banks
Frequency
Submission
Deadline
As
transaction
occurs

transaction
Original and duplicate Appropriate department of

the SES
Annually

-do-
-do-
Submission
Procedure
Original - SDC Duplicate Appropriate department of

the SES
Schedules:
1 - Loans-to-Deposit Ratio
Supplementary
Information
Quarterly

cc: Mail/Diskette/Hard
copy; SDC/Appropriate
Control Prooflist
-do-
-do-
SDC/Appropriate
Statement of Income and Expenses (by Banking Unit)
-do-
-do-
copy; SDC
Consolidated Statement of Income and Expenses
APP. 6
08.12.31
Category
Category
A3
Form No.
Unnumbered
MOR Ref.
X393
Cir. 613 dated
06.18.08 and
M-2008-032
dated
10.31.08
Report Title
Submission
Deadline
Submission
Procedure
Semestral

SDC
sdcrb-bris@bsp.gov.ph
Quarterly

-do-
-do-
-do-
Quarterly

quarter
Electronic mail/Diskette/
Hardcopy: SDC
sdcrb-agra@bsp.gov.ph
Frequency
Schedules:
Selected Balance Sheet and Income Statement
Accounts
Breakdown of deposit Liabilities
Reconciling Items Outstanding for More than Six
(6) Months on the Due From/Due to Head Office,
Branches and Agencies Account
A3
RB/COB
Form 4A
X335
X409.3
Consolidated Report on compliance with Individual

Ceiling on Direct credit Accommodations to Directors/
Officers/Stockholders/Related Interests (DOSRI)
Schedule:
1. Compliance with Individual Ceiling on Credit
Accommodations to DOSRI
A3
RB/COB
Form 4B
X335
X409.3
Consolidated Report on the Compliance with

Aggregate Ceiling on Credit Accommodations to
DOSRI
A3
RB/COB
Form 5a
X341.9
(Rev. Dec.
2004 MAB
dated
09.08.04)

Funds Generated Which Were Set Aside for Agrarian
Reform Credit/Other Aricultural Credit
APP. 6
08.12.31
Schedules:
1 Secured and Unsecured DOSRI Loans
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Schedules:
A - Total Collection from Loan Portfolio as of 31
May 1975
B - Direct Loans to Farmer's Assn. or Coop for High
Value Crop Projects
C - Utilization of 10% Loanable Funds Generated
for Agrarian Reform Credit
D - Utilization of 15% Loanable Funds Generated
for Agricultural Credit
E - Development Loan Incentives
F - Report of Compliance with PD 71
G - Report on Loans Granted to Barangay Micro
Business Enterprises (BMBEs)
(Revised per MAB dated 4.28.03)
Control Prooflist (notarized)
A3
RB/COB
Form 5B
X342.6
(Cir. 625
dated
10.14.08 and
M-2008-035
dated
11.19.08)

Allocation Required under RA 6977, as amended by
RA nos. 8289 and 9501
Schedules:
1A

Purposes of Determining Amount of
1A- Wholesale Lending of a Bank to

1
Conduit NBFIs w/o QB authority Other Than
Those for ON-Lending to MSMEs
Quarterly
Upon transmission/
submission of main
report
copy: SDC (by fax, if hard
copy cannot be submitted
on deadline)
-do-

end reference quarter
Electronic mail/diskette:
SDC - email at sdcrbsme@bsp.gov.ph
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Submission
Deadline
Submission
Procedure
Quarterly
15th Banking day after

SDC
Annually

Original - SDC
Duplicate- Appropriate
Frequency
1A- Loans Granted Under Special

2
Financing Program Other Than for MSMEs
1A
3
Loans Granted to MSMEs Other

Than to BMBEs Which are Funded by
Wholesale Lending of or Rediscounted with
Another Bank
1B
Details of Eligible Inverstments for

Compliance with the Required Credit
Allocation for MSMEs
1B- Loans Granted to MSMEs Other than

1
to BMBEs which are Funded by Wholesale
Bank
1B- Wholesale Lending or Rediscounting Facility
2
Granted to Participating Financial Institutions
for On-Lending to MSMEs other than to
BMBEs
2
3
Reconciliation of Loans Granted to MSMEs

as Reported Under Schedules 1B, 1B-1 and
2 and FRP Balance of Microfinance and SME
Loans
Control Prooflist
Unnumbered
32776
Summary of Loans Granted
APP. 6
08.12.31
A3
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Form No.
MOR Ref.
A3
Unnumbered
X162
(Cl-2007-050
dated
10.04.07 CL2007-059
dated
11.28.07)
Quarterly

of reference quarter
Original to SDC
RB/COB
Form 10
X162.6
Reconciling Items Outstanding for More than Six

Months on the Due from/Due to Head Office/Branches
& Agencies Account (by Banking Unit)
Semestral

end
of
reference
semester
RB/COB
Form 13
X338.3
X339.4
(Cir. 487
dated
06.03.05)
Report on Availment of Financial Assistance to Officers

and Employees under an Approved Plan
Semestral

end
of
reference
semester
-do-do-
RB/COB
Form 16
X162.7
(As amended
by Cir. No.
533 dated
06.19.06)
Consolidated List of Stockholders and Their

Stockholdings and Changes thereto
RB/COB
Form 18
X144
(CL dated
01.09.01, as
amended by
M-2008-024
dated
07.31.08)
Biographical Data of Directors/Officers

- If submitted in discette form - Notarized first page
of each of the directors'/officers' bio-data saved
in diskette and control prooflist
- If sent by electronic mail - Notarized first page of
Biographical Data or Notarized list of names of
Directors/Officers whose Biographical data were
submitted thru electronic mai to be faxed to SDC
(CL dated 1.09.1)
Annually/
Quarterly
when
changes
occurs

end of calendar year and
if there are changes, 12th
banking day after end of
the reference quarter
After
election or
appointment
and as
change
occurs
7th day from the date of

the meeting of the board
of directors in which the
elected of appointed
cc: Mail/Diskette to SDC

Original - SDC DuplicateAppropriate department of
the SES
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
MAAB dated
09.02.05
Certification under oath of independent directors that

he/she is and independent director as defined under
Section X141.10 and that all the information thereby
suppliled are true and correct.
Cir. 513
dated
02.10.06
Verified statement of directors/officers that he/she has

all the aforesaid qualificatons and none of the
disqualifications.
Frequency
Submission
Deadline
Submission
Procedure
As
necessary
7th banking day prior to

effectivity of change
Original-Appropriate
RB/COB
Form 19
X156.2
New Schedule of Banking Days/Hours
RB/COB
Form 20
X162.5
Sworn Statement of Real Estate/Chattel transaction to

DOS
As
transaction
is approved

approval of transaction
-do-
SES Form
6G
S162.4
(As amended
by Cir. Nos.
587 dated
10.26.07 and
486 dated
06.01.05)
Report on Crimes and Losses
As
transaction
occurs As
incident
occurs

calendar days from
knowledge of crime/
twenty (20) calendar days
from termination of
examination
SDC and SITD
Unnumbered
(no precribed
form)
X143.4
Report on disqualification of Directors/Officers
As
disqualification
occurs

BOD
RB/COB
Form 23
X306.5
(As amended
by Cir. No.
463 dated
12.29.04)
Notice/Application for Write-off Loans, Other Credit

Accommodations, advances and Other Assets
As write-off
occurs
Within 30 days after

every write-off

of the SES
APP. 6
08.12.31
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
RB/COB
Form 25
X144
List of Members of the Board of Directors and Officers
Annually

election or appointment
RB/COB
Form 26
X334
Transmittal of Board Resolution/Written Approval on

Credit Accommodation to DOSRI in compliance with
Sec. 36, R.A. 8791, as amended
As
transaction
occurs

date of approval
-do-
Unnumbered
X328.5
(Cir.560 dated
01.31.07)
Transmittal of Board Resolution/Written Approval On

Credit Accommodations to Subsidiaries and/or
Affiliates in Compliance with Sec. X328.5
As loan to
subsidiaries
and/or
affiliates is
approved
20 banking days after

approval

of the SES
X166.6
Annual report of Management to Stockholders

Covering Results of Operation for the Previous Year
Annually
180 days after close of

calendar or fiscal year
Original-appropriate
Unnumbered
X162.1
Report on the Designation of Authorized Signatories

of Bank's Reports Classified as Category A1, A2, A3
and B
as
designation
by bank's
board of
directors
occurs

from the date the
designation/change
occurs
-do-
Unnumbered
X262.3
Cerification of Compliance with Section 55.4 of R.A.

No. 8791
Semestral

after end of June and
December
-do-
Unnumbered
X425.3
As transaction
occurs
30th day from date of the

bond flotation by the LGU
DES
X409.16
Waiver of the Confidentiality of Information under

Sections 2 and 3 of R.A. No. 1405, as amended
As transaction
occurs
of the SES
APP. 6
08.12.31
Category
Category
Form No.
MOR Ref.
Report Title
Frequency
Submission
Deadline
Submission
Procedure
Unnumbered
X235.12
(Cir. 467 dated
01.10.05)
Notarized Cerification that the bank did not enter into

Repurchase Agreement covering Government Secuities,
Commercial Papers and Other Non-negotiable Securities
or instruments that are not documented
Semestral

of the SES
Unnumbered
X235.12
(Cir. 467 dated
01.10.05)
Report on Undocumented Repurchase Agreements
As
transaction
occurs

of the reference semester
-do-
SEC Form
(MAB dated
09.02.05)
Annual

annual stockholders'
meeting
Drop box-SEC Cenmtral

Receiving Section
Quarterly

SDC

Weekly

SDCsdc-ndf@bsp.gov.ph
cc: Treasury Dept.
fx-omo@bsp.gov.ph
Control Prooflist
Weekly

-do-
(M-2008005dated
02.04.08)
(M-2008-019
dated
05.03.08)
Disclosure Statement on SPV Transactions
APP. 6
08.12.31
APP. 7
05.12.31
CERTAIN INFORMATION REQUIRED FROM BANKS

1.
2.
3.
4.
5.
Name of bank
Address
P. O. Box Number
Cable address or cable code
Board of Directors including Corporate
Secretary:
a. Names of Chairman, Vice-Chairman
and Directors;
b. Number of directors per by-laws;
c. Number of vacancies in the Board;
d. Names of corporations where they
serve as Chairman of the Board or
as President and names of other
business enterprises of which they
are proprietors or partners;
e. For the Corporate Secretary, indicate
if he is also a Director; and
f. Date of annual election of directors
per by-laws.
6. President to Department Heads,

including Auditor:
a. Names and titles;
b. Telephone number of each officer
(office);
c. For Executive Vice Presidents, state

the names of corporations where
they serve as Chairman of the Board
and names of other business
enterprises of which they are
proprietors or partners; and
d. For Vice-Presidents and other
officers with non-descriptive titles,
indicate area of responsibility, e.g.,
Vice-President for Operations or
Vice-President, International
Department.
7. Branches, agencies and extension
offices:
a. Name of branch, agency or
extension office, e.g., Quiapo
Branch or Makati Agency;
b. Address;
c. Names and telephone numbers of:
(1) Manager
(2) Cashier
(3) Accountant; and
d. For agencies and extension
offices, indicate name of mother
branch.
Appendix 7 - Page 1
APP. 8
05.12.31
DOCUMENTS/INFORMATION ON ORGANIZATIONAL
STRUCTURE AND OPERATIONAL POLICIES
1. Chart of the firms organizational

structure or any substitute therefor;
2. Name of departments/units/offices with
their respective functions and
responsibilities;
3. Designations of positions in each
department/unit/office with the
respective duties and responsibilities;
4. Manual of Instructions or the like
embodying the operational policies/
procedures of each department/unit/
office, covering such areas as:
a) Signing/delegated authority;
b) Procedure/flow of paper work; and

c) Other matters;
5. Memoranda-Circulars or the like issued
covering organizational and operational
policies;
6. Sample copies of each of the forms/
reports used by each office/unit/
department other than those submitted
to the BSP; and
7. Such other documents/information that
may be required from time to time by
the supervisory/regulatory department
concerned.
Appendix 8 - Page 1
APP. 9
05.12.31
GUIDELINES FOR CONSOLIDATION OF FINANCIAL STATEMENTS OF BANKS

AND THEIR SUBSIDIARIES ENGAGED IN FINANCIAL ALLIED
UNDERTAKINGS
(deleted by Cir. 494 dated 20 September 2005)
Appendix 9 - Page 1
APP. 10
08.12.31
FORMAT OF SELF-ASSESSMENT AND CERTIFICATION ON COMPLIANCE WITH

RULES AND REGULATIONS ON BANK PROTECTION
(Name of Bank)
I hereby certify that the Bank has developed and adopted an updated security
program which has been reduced in writing and approved by the Banks Board of Directors
in its Resolution No. ______ dated __________ and retained by this Bank in such form as
will readily permit determination of its adequacy and effectiveness. I also certify that I
have evaluated/assessed said security program and its implementation and that to the best
of my knowledge and belief said security program equals or exceeds the standards
prescribed by the Bangko Sentral rules and regulations.
Attached are the results of the self-assessment prepared under my supervision
regarding the Bank's security program.
President
Date
ASSESSMENT OF COMPLIANCE WITH RULES AND

REGULATIONS ON BANK PROTECTION
(Name of Bank)
I, ________________________, Security Officer of (Name of Bank), hereby certify
that 1. The Bank has a written security program approved by its board of directors and
retained by this Bank in such form as will readily permit determination of its adequacy and
effectiveness;
2. The security program is compliant with the standards set by BSP rules and regulations
and commensurate to the Banks operations, taking into consideration its size, locations
and the number of its offices. The security program of the Bank is deemed adequate to
promote maximum protection of life and property against crimes and other destructive
causes; prevent and discourage crimes against the Bank; and assist law enforcement
agencies in the identification and prosecution of perpetrators of crimes committed against
the Bank;
APP. 10
08.12.31
3. The assessment we conducted last ___________ disclosed that said security program
of the Bank has faithfully been implemented by the Bank and the implementation
thereof is substantially compliant with the requirements on bank protection prescribed
under Section X171 as follows:
a. Guard system
Description of the system
b. Security devices
Description of the security devices, such as:
Surveillance system;
Burglar alarm system; and
Robbery/hold-up alarm system.
c. Vaults and safes
State physical description and minimum security measures designed for the vault
d. Security of the premises
Description of the security measures/devices for banking premises
e. Automated Teller Machines (ATM)
Description of security measures/devices for ATMs
f. Armored car operation
Description of armored vehicles and security measures adopted for them
g. Employees training
Describe training given
There are no noted adverse deviations of the program from the requirements under
BSP rules and regulations. (If there are deviations, please state, We noted the following
deviations and the measures taken to address the deviations.)
4.
a.
b.
c.
d.
The Bank has written procedures on the following emergency programs:

Anti-robbery/hold-up plan;
Bomb threat plan;
Fire protection plan; and
Other disaster plan like earthquake and terrorist attack.
5. The Bank periodically inspects, tests and reviews its security program and records
thereof are adequately maintained and will be made readily available to the BSP for the
determination of the programs adequacy and effectiveness.
Security Officer
Date
Noted by:
President
Date
APP. 11
05.12.31
PRO-FORMA ORDER OF WITHDRAWAL FOR "NOW" ACCOUNTS

The order of withdrawal form shall have a size of three (3) inches by seven (7)
inches, and shall be on security/check paper. It shall contain as a minimum the features
contained in the following pro-forma order of withdrawal:
FRONT
Acct. No. ______
No. _______
ORDER OF WITHDRAWAL
"NOW" ACCOUNTS
____________, 20 ___
Pay to ______________ the amount of PESOS ____________________ (P________)
NAME OF DRAWEE BANK
Address
Drawer/Depositor
BACK
Important
1. This order of withdrawal shall be payable only to a specific person, natural or juridical,
and not to bearer nor to the order of a specific person.
2. Only the payee can encash this order of withdrawal with the drawee bank, or deposit it in
his account with the drawee bank or with any other bank.
APP. 12
05.12.31
SAMPLES OF STANDARDIZED INSTRUMENTS EVIDENCING

DEPOSIT SUBSTITUTE LIABILITIES
Original
Serial No. ________

_______________________________________________________
(Name of Bank)
PROMISSORY NOTE
Issue Date
: _________, 20 ______.
Maturity Date : _________, 20 ______.
FOR PESOS ___________________________________________ (P__________), RECEIVED.
(Present Value/Principal)
_____________________________ promises to pay _________________________________
(Name of Issuer/Maker)
(Name/Account Number of Payee)
or order, the sum of PESOS ________________________________________ (P__________),
(Maturity Value/Principal & Interest)
subject to the terms and conditions on the reverse side hereof.
__________________________________
Duly Authorized Officer
NOT INSURED WITH THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC)
APP. 12
05.12.31
TERMS AND CONDITIONS OF A PROMISSORY NOTE

1. Computation of Yield
Interest is hereby stipulated/computed at ________% per annum, compounded
( ) monthly
( ) quarterly
( ) semi-annually
( ) Others.
2. No Pretermination
This promissory note shall not be honored or paid by the issuer/maker before the maturity
date indicated on the face hereof.
3. Liquidated Damages
In case of default, issuer/maker shall pay, in addition to stipulated interest, liquidated
damages of (amount or %), plus attorneys fees of (amount or %) and costs of collection
in case of suit.
4. Renewal
( )
( )
No automatic renewal.
Automatic renewal under the following terms:
5. Collateral/Delivery
( )
( )
No automatic renewal
Collateralized/secured by (describe collateral)
( ) Physically delivered to payee
( ) Evidenced by Custodian Receipt No. ___________________________________
dated _______________________ issued by ______________________________.
( ) Collateralized/secured by (fraction or %) share of (describe collateral)
as evidenced by Custodian Receipt No. ___________ dated ______________
issued by ___________________________________.
6. Substitution of Securities
( )
( )
Not acceptable to Payee

Acceptable to payee, however, actual substitution shall be with prior written consent
of payee.
7. Separate Stipulations
( ) This Agreement is subject to the terms and conditions of (describe document) dated
______________________, executed by (name of party/ies) and made an integral
part hereof.
APP. 12
05.12.31
Original
Serial No. ___________________

______________________________________
(Name of Bank)
REPURCHASE AGREEMENT
Issue Date : __________, 20 ______.

Repurchase Date : __________, 20 ______.
FOR AND IN CONSIDERATION OF PESOS _______________________________________
(P_________________) Vendor, _______________________________________, hereby sells,
(Name of Issuer/Vendor)
transfers and conveys in favor of Vendee,_________________________________________,
(Name of Vendee)
the security(ies) described below, it being mutually agreed upon that the same shall be
resold by Vendee and repurchased by Vendor on the repurchase date indicated above at the
price of PESOS ___________________________________________________ (P____________),
subject to the terms and conditions stated on the reverse side hereof.
(Description of Securities)
Principal Debtor/s
Serial Number/s
Maturity Date/s
Face Value
P
Interest/Yield
P
TOTAL
CONFORME:
_________________________
(Signature of Vendee)
_________________________
APP. 12
05.12.31
TERMS AND CONDITIONS OF A REPURCHASE AGREEMENT

1.
Computation of Yield
Yield is hereby stipulated/computed at ____________ % per annum, compounded
( ) monthly
( ) quarterly
( ) semi-annually
( ) others
2.
No Pretermination
Vendor shall not repurchase subject security/ies before the repurchase date stipulated
on the face of this document.
3.
Liquidated Damages
In case of default, the Vendor shall be liable, in addition to stipulated yield, for liquidated
damages of (amount or %), plus atttorneys fees of (amount or %) and costs of collection
in case of suit.
4.
Renewal
( ) No automatic renewal
( ) Automatic renewal under the following terms:
____________________________________________________________________
____________________________________________________________________
5.
Delivery/Custody of Securities
( ) Physically delivered to payee
( ) Evidenced by Custodian Receipt No. _______________________________, dated
___________________________, Issued by _______________________________.
6.
Substitution of Securities
( ) Not acceptable to Payee
( ) Acceptable to payee, however, actual substitution shall be with prior written
consent of payee.
7.
Separate Stipulations
( ) This Agreement is subject to the terms and conditions of (describe document)
dated _______________________________, executed by (name of party/ies) and made
an integral part hereof.
APP. 12
05.12.31
Original
Serial No. ________________

_______________________________________
(Name of Bank)
CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Issue Date: _____________, 20 _____.

FOR AND IN CONSIDERATION OF PESOS _________________________________________
(P _____________), ____________________________ hereby assigns, conveys, and transfers
(Name of Assignor)
with recourse to____________________________ the debt of _________________________
(Name of Assignee)
(Name of Principal Debtor)
to the Assignor, specifically described as follows:
(Description of Debt Securities)
Principal Debtor/s
Serial Number/s
Maturity Date/s
TOTAL
Face Value
P
P
Interest/Yield
P
P
and Assignor hereby undertakes to pay, jointly and severally with the Principal Debtor, the
face value of, and the interest/yield on, said debt securites. This assignment shall be subject to
the terms and conditions on the reverse side hereof.
C O N F O R M E :
(Signature of Assignee)
APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE

Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof.
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (amount or %) plus attorneys fees of (amount or %) and costs of collection in case of
suit.
3. Delivery/Custody of Securities
( ) Physically delivered to Assignee
( ) Evidenced by Custodian Receipt No. _________________ dated __________________,
issued by ________________________,
( ) This Agreement is subject to the terms and conditions of _________________________
__________________, dated _______________ executed by name of party/ies and
made an integral part hereof.
APP. 12
05.12.31
Original
Serial No. ________________

_______________________________________
(Name of Bank)
CERTIFICATE OF ASSIGNMENT WITH RECOURSE
Issue Date: _____________, 20 _______.

FOR AND IN CONSIDERATION OF PESOS _________________________________________
(P _________________), ___________________________________ hereby assigns, conveys,
(Name of Assignor)
and transfers with recourse to __________________________________________ the debt of
(Name of Assignee)
_______________________________ to the Assignor, specifically described as follows:
(Name of Principal Debtor)
Principal Debtor/s
Serial Number/s
Maturity Date/s
TOTAL
Face Value
P
Interest/Yield
P
and hereby undertakes that in case of default of the Principal Debtor, Assignor shall pay the
face value of interest/yield on, said debt securities, subject to the terms and conditions on the
reverse side hereof.
C O N F O R M E :
____________________________
(Signature of Assignee)
__________________________
APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF ASSIGNMENT WITH RECOURSE

Assignor shall not pay nor repurchase subject security/ies before the maturity date thereof.
In case of default, Assignor shall be liable, in addition to interest, for liquidated damages
of (amount or %) plus attorneys fees of (amount or %) and costs of collection in case
of suit.
3. Delivery/Custody of Securities
( ) Physically delivered to Assignee
( ) Evidenced by Custodian Receipt No. _________________ dated __________________,
issued by ________________________,
( ) This Agreement is subject to the terms and conditions of _________________________
__________________, dated ______________ executed by (name of party/ies) and
APP. 12
05.12.31
Original
Serial No. ________________

______________________________________
(Name of Bank)
CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issue Date: ____________, 20 _____

FOR AND IN CONSIDERATION OF PESOS ______________________________________,
this certificate of participation is hereby issued to evidence the _______________________
(fraction or %)
share of ________________________________________________________________ in the
(Name of Participant)
loan/s of ___________________________________ granted by/assigned to the herein issuer,
specifically described as follows:
Principal Debtor/s
Serial Number/s
Maturity Date/s
TOTAL
Face Value
Interest/Yield
The issuer shall pay, jointly and severally with the principal debtor, ______________________
(fraction or %)
share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms
and conditions on the reverse side hereof.
C O N F O R M E :
___________________________
(Signature of Participant)
____________________________
(Duly Authorized Officer)
APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE

1.
No Pretermination
Issuer shall not pay nor repurchase the participation before the maturity date of subject
security(ies).
2.
Liquidated Damages
In case of default, the issuer of this instrument shall be liable, in addition to interest, for
liquidated damages of (amount or %) , plus attorneys fees of (amount or %) and costs
of collection in case of suit.
3.
( ) Physically delivered to Participant
( ) Evidenced by Custodian Receipt No. _________________ dated _____________,
issued by _________________________________.
4.
__________________________________ dated ______________________ executed by
(name of party/ies) and made an integral part hereof.
APP. 12
05.12.31
Original
Serial No. ________________

______________________________________
(Name of Bank)
CERTIFICATE OF PARTICIPATION WITH RECOURSE
Issue Date: ____________, 20 ______

FOR AND IN CONSIDERATION OF PESOS ______________________________________,
this certificate of participation is hereby issued to evidence the _______________________
(fraction or %)
share of __________________________________________________________ in the loan/s
(Name of Participant)
of ________________________________ granted by/assigned to the herein issuer, specifically
described as follows:
Principal Debtor/s
Serial Number/s
Maturity Date/s
TOTAL
Face Value
P
Interest/Yield
P
In case of default of the Principal Debtor, the issuer shall pay the ________________________
(fraction or %)
share of the face value of, and the interest/yield on, said debt security(ies), subject to the terms
and conditions on the reverse side hereof.
C O N F O R M E :
__________________________
(Signature of Participant)
__________________________
Duly Authorized Officer)
APP. 12
05.12.31
TERMS & CONDITIONS OF CERTIFICATE OF PARTICIPATION WITH RECOURSE

1.
No Pretermination
Issuer shall not pay nor repurchase the participation before the maturity date of subject
security(ies).
2.
Liquidated Damages
In case of default, the issuer of this instrument shall be liable, in addition to interest, for
liquidated damages of (amount or %) , plus attorneys fees of (amount or %) and costs
of collection in case of suit.
3.
( ) Physically delivered to Participant
( ) Evidenced by Custodian Receipt No. __________________________ dated
___________________, issued by _________________________________.
4.
__________________ dated _________________ executed by (name of party/ies) and
APP. 13
05.12.31
NEW RULES ON THE REGISTRATION

OF LONG-TERM COMMERCIAL PAPERS
(Appendix to Subsecs. X239.2 and X239.5)
Pursuant to Section 4(b) of the Revised
Securities Act and other existing
applicable laws, the Securities and
Exchange Commission (SEC) hereby
promulgates the following New Rules and
Regulations governing long-term
commercial papers, in the interest of full
disclosure and protection of investors and
lenders, in accordance with the monetary
and credit policies of the BSP:
Section 1. Scope. These Rules shall apply
to long-term commercial papers issued by
corporations.
Sec. 2. Definitions. For purposes of these
Rules, the following definitions shall apply:
a. Long-term commercial papers shall
refer to evidence of indebtedness of any
corporation to any person or entity with
maturity period of more than 365 days.
b. Interbank loan transactions shall
refer to borrowings between and among
banks and quasi-banks.
c. Issue shall refer to the creation of
commercial paper and its actual or
constructive delivery to the payee.
d. Appraised value shall refer to the
value of chattle and real property as
established by a duly liscensed and
independent appraiser.
e. Current market value shall refer to
the value of the securities at current prices
as quoted at the stock exchanges.
f. Recomputed debt-to-equity ratio
shall refer to the proportion of total
outstanding liabilities, including the amount
of long-term commercial papers applied for,
and any unissued authorized commercial
papers to net worth.
g. Specific person shall refer to a duly
named juridical or natural person as an
investor for its or his own account, a trustee
for one or more trustors, an agent or fund

manager for a principal under a fund
management agreement, and does not
include numbered accounts.
h. Net worth shall refer to the excess
of total assets over total liabilities, net of
appraisal surplus.
i. Subsidiary shall refer to a company
more than fifty percent (50%) of the
or indirectly owned, controlled, or held with
power to vote by another company.
j. Affiliates shall refer to a concern
linked, directly or indirectly, to another by
means of:
1) Ownership, control and power to
vote of 10% but not more than 50% of the
outstanding voting stock.
2) Common major stockholders; i.e.,
owning 10% but not more than 50% of the
outstanding voting stock.
3) Management contract or any
arrangement granting power to direct or
cause the direction of management and
policies.
4) Voting trustee holding 10% but not
more than 50% of the outstanding voting
stock.
5) Permanent proxy constituting 10%
but not more than 50% of the outstanding
voting stock.
k. Underwriting shall refer to the act
or process of distributing and selling of any
kind of original issues of long-term
commercial papers of a corporation other
than those of the underwriter itself, either
on guaranteed or best-effort basis.
I. Trust accounts shall refer to those
accounts with a financial institution
authorized by the BSP to engage in trust
functions, wherein there is a trustortrustee relationship under a trust
agreement.
APP. 13
05.12.31
Sec. 3. Conditions for Registration. Longterm commercial papers shall be registered

under any of the following conditions:
a. Collateral
The amount of long-term commercial
papers applied for is covered by the
following collaterals which are not
encumbered, restricted or earmarked for
any other purpose and which shall be
maintained at their respective values at
all times, indicated in relation to the face
value of the long-term commercial paper
issue:
1) Securities listed in the stock
exchanges
Current market
value of 200%
2) Registered real estate

mortgage
- Appraised value
of 150%
3) Registered chattel mortgage

on heavy equipment,
machinery, and similar
assets acceptable to the
Commission and registrable
with
the appropriate
government agency
- Appraised value
of 200%
b. Financial Ratios
A registrant who meets such standard,as
may be prescribed by the SEC, based on
the following complementary financial
ratios for each of the immediate past three
(3) fiscal years:
1) Ratio of (a) the total cash,
marketable securities, current receivables to
(b) the total of current liabilities;
2) Debt-to-equity ratio, with debt
referring to all kinds of indebtedness,
including guarantees;
3) Ratio of (a) net income after taxes
to (b) net worth.
4) Net profits to sales ratio; and
5) Such other financial indicators, as
may be required by the SEC.
c. Debt-to-equity
The recomputed debt-to-equity ratio
of the applicant based on the financial
statements required under Sec. 4.c. hereof
shall not exceed 4:1: Provided, that the
authorized short-term commercial papers do
not exceed 300% of net worth and upon
compliance with the registration

requirements specified in Sec. 4 hereof.
The conditions under which the
commercial papers of a registrant were
registered shall be stictly maintained during
the validity of the Certificate of
Registration.
Sec. 4. Registration Requirements. Any
corporation desiring to issue long-term
commercial papers shall apply for
registration with, and submit to, the SEC
the following:
a. Sworn Registration Statement in
the form prescribed by the SEC;
b. Board resolution signed by a
majority of its members 1) authorizing the issue of long-term
commercial papers;
2) indicating the aggregate amount to
be applied for;
3) stating purpose or usage of
proceeds thereof;
4) providing that the registration
statement shall be signed by any of the
following: the principal executive officer,
the principal operating officer, the principal
financia officer, or persons performing
similar functions; and
5) designating at least two (2) senior
officers with a rank of vice-president, or
higher of their equivalent, to sign the
commercial paper instruments to be issued.
c. The latest audited financial
statements and should the same be as of a
date more than three (3) months prior to
the filing of the registration statements, an
unaudited financial statement as of the end
of the immediately preceding month:
Provided, however, That such unaudited
financial statement shall be certified under
oath by the accountant and the senior
financial officer of the applicant duly
authorized for the purpose and substituted
with an audited financial statement within
105 days after the end of the applicant's
fiscal year;
APP. 13
05.12.31
d. Schedules A to L based on
Subsection c above, in the form attached as
Annex "A";
e. Income statements for the
immediate past three (3) fiscal years audited
by an independent certified public
accountant: Provided, That if the applicant
has been in operation for less than three (3)
years, it shall submit income statements for
such number of years that it has been in
operation;
f. An underwriting agreement for the
long-term commercial paper issues with an
expanded commercial bank or an
investment house (IH), or any other financial
institution which may be qualified
subsequently by the BSP with minimum
condition, among others, that the
underwriter and the issuer shall be jointly
responsible for complying with all
reportorial requirements of the SEC and the
BSP in connection with the long-term
commercial paper issue, it being understood
that the primary responsibility for the
submission of the report of these regulatory
agencies is upon the underwriter during the
effectivity of the underwriting agreement
and thereafter, the responsibility shall
devolve upon the issuer: Provided,
however, That if the issuer is unable to
provide the information necessary to meet
such reportorial requirements, the
underwriter shall, not later than two (2)
working days prior to the date when the
report is due, notify the SEC of such inability
on the part of the issuer: Provided, further,
That if the underwriting agreement is with
a group composed of universal banks and/
or investment houses or any financial
institutions which may be qualified
subsequently by the BSP, there shall be a
syndicate manager acting and responsible
for the group: Provided, finally, That the
underwriter may be changed subject to prior
approval by the SEC;
g. A typewritten copy of a preliminary
prospectus approved by the applicant's
board of directors which, among others,

shall contain the following:
1) A statement printed in red on the
left-hand margin of the front page, to wit:
"A registration statement relating to
these long-term commercial papers has been
filed with, but has not yet been approved
by, the SEC. Information contained herein
is subject to completion or amendment.
These long-term commercial papers may not
be sold nor may offers to buy be accepted
prior to the approval of the registration
statement. This preliminary prospectus shall
not constitute an offer to buy nor shall there
be any sale of these long-term commercial
papers in the Philippines as such offer,
solicitation or sale is prohibited prior to
registration under the Revised Securities
Act".
2) Aggregate maximum amount
applied for, stated on the front page of the
prospectus;
3) Description and nature of the
applicant's business;
4) Inteded use of proceeds;
5) Provisions in the underwriting
agreement, naming the underwriter and its
responsibilities in connection with, among
others, the reportorial requirements under
these Rules;
6) Other obligations of the applicant
classified by maturities - maturing within six
(6) months; from six (6) months to be one
(1) year; and one (1) year and past-due
amounts;
7) List of assets which are encumbered,
restricted or earmarked for any other
purposes;
8) List of directors, officers and
stockholders owning two percent (2%) or
more of the total outstanding voting stock of
the corporation, indicating any advance to said
directors, officers and stockholders; and
9) List of entities where its owns more
than 33- 1/3% of the total outstanding voting
stock, as well as borrowings from, and
advances to, said entities.
APP. 13
05.12.31
h. Projected annual cash flow

statement presented on a quarterly basis as
of the approximate date of issuance for a
period coterminus with the life time of the
issue, indicating the basic assumptions
hereto and supported by schedules on actual
maturity patterns of outstanding receivables
and liabilities (under six (6) months, six (6)
months to one (1) year, over one (1) year,
and past-due accounts) and inventory
turnover; and
i. Data on financial indicators as may
be prescribed by the SEC for each of the
immediate past three (3) fiscal years, such
as on solvency, liquidity and profitability.
The SEC may, whenever it deems
necessary, impose other requirements in
addition to those enumerated above.
Sec. 5. Action on Application for Registration
a. Within sixty (60) days after receipt
of the complete application for registration,
the SEC shall act upon the application and
shall, in the appropriate case, grant the
applicant a Certificate of Registration and
Authority to Issue Long-Term Commercial
Papers valid for one (1) year, which may be
renewed annually with respect to the
unissued balance of the authorized amount
upon showing that the registrant has strictly
coplied with the provisions of these Rules
and the terms and conditions of the
Certificate of Registration.
b. The SEC shall return any application
for registration, in cases where the
requirements of applicable laws and
regulations governing the issuance of longterm commercial papers have not been
complied with, or for other reasons which
shall be so stated.
Sec. 6. Close-end Registration. Registration
of long-term commercial papers under these
Rules shall be a close-end process whereby
the portion of the authorized amount
already issued shall be deducted from the
authorized amount and may no longer be
reissued even if reacquired in any manner,

pursuant to the terms and conditions of issue.
Sec. 7. Long-Term Commercial Papers
Exempt Per Se. The following specific longterm debt instruments are exempt per se
from the provisions of these Rules:
a. Evidence of indebtedness arising
from interbank loan transactions;
b. Evidence of indebtedness issued by
the national and local governments;
c. Evidence of indebtedness issued by
government instrumentalities, the
repayment and servicing of which are fully
guranteed by the National Government;
d. Evidence of indebtedness issued to
the BSP under its open market and/or
rediscounting operations;
e. Evidence of indebtedness issued by
the BSP, Philippine National Bank (PNB),
Development Bank of the Philippines (DBP)
and Land Bank of the Philippines (LBP);
f. Evidence of indebtedness issued to
the following primary institutional lenders:
banks including their trust accounts, trust
companies, quasi-banks, IHs including their
trust accounts, financing companies,
investment companies, non-stock savings
and loan associations, venture capital
corporations, special purpose corporations
referred to in Central Bank Monetary Board
Resolution No. 1051 dated 19 June 1981,
insurance companies, government financial
institutions, pawnshops, pension and
retirement funds approved by the Bureau
of Internal Revenue (BIR), educational
assistance funds established by the national
government and other entities that may be
classified as primary institutional lenders by
the BSP, in consultant with the SEC:
Provided, That all such evidences of
indebtedness shall be held on to
maturityand shall neither be negotiated nor
assigned to any one other than the BSP and
the DBP, with respect to private
development banks in connection with their
rediscounting privileges;
APP. 13
05.12.31
g. Evidence of indebtedness, the total

outstanding amount of which does not
exceed P15.0 million and issued to not
more than fifteen (15) primary lenders other
than those mentioned in subsection (f)
above, which evidence of indebtedness
shall be payable to specific persons, and
not to bearers, and shall neither be
negotiated nor assigned but held on to
maturity: Provided, That the aggregate
amount of P15.0 million shall include
outstanding short-term commercial papers:
Provided, further, That in reckoning
compliance with the number of primary
lenders under this section, holders of such
papers exempt under Sec. 4(f) of the Rules
on Registration of Short-Term Commercial
Papers, as amended, shall be counted:
Provided, furthermore, That such issuer
shall:
1) File a disclosure statement prior to
the issuance of any evidence of
indebtedness; and a quarterly report on
such borrowings in the forms prescribed by
the SEC; and
2) Indicate in bold letters on the face
of the instrument the words "NONNEGOTIABLE, NON-ASSIGNABLE":
Provided, finally, That any issuer, in
accordance with the Rules on Registration
of Long-Term Commercial Papers and
Bonds dated 15 October 1976 and
withoutstanding long-term commercial
papers falling under this subsection as of
the effectivity date hereof, shall likewise
file the prescribed disclosure statement and
the quarterly report on such borrowings;
h. Evidence
of indebtedness
denominated in foreign currencies; and
i. Evidence of indebtedness arising
from bona fide sale of goods or property.
Sec. 8. Other Long-Term Commercial
Papers Exempt from Registration. The
following long-term commercial papers
shall be exempt from registration under
Secs. 3 and 4 hereof, but shall be subject
to the payment of the exemption fee, as

prescribed under Sec. 14, and to the
reportorial requirements under Sec. 15 of
these Rules:
a. Long-term commercial papers
issued by a financial intermediary
authorized by the BSP to engage in quasibanking functions; and
b. Long-term commercial papers fully
secured by debt instruments of the National
Government and the BSP and physically
delivered to the trustee in the Trust
Indenture.
Sec. 9. Prohibition
a. No long-term commercial papers
shall be issued or negotiated or assigned
unless the requirements of these Rules shall
have been complied with: Provided, That
no registered long-term commercial paper
issuer may issue long-term commercial
paper exempt per se under Sec. 7(g) hereof.
b. There shall be no pretermination of
long-term commercial papers either by the
issuer or the lender within 730 days from
issue date. Pretermination shall include
optional redemption, partial installments, and
amortization payments; however, installment
and amortization payments may be allowed,
if so stipulated in the loan agreement.
Sec. 10. Compliance with Bangko Sentral
Quasi-Banking Requirements. Nothing in
these Rules shall be construed as an
exemption from, or a waiver of, the
applicable BSP rules and regulations
governing the performance of quasibanking functions. Any violation of said BSP
rules and regulations shall be considered a
violation of these Rules.
Sec. 11. Conditions of the Authority to
Issue Long-Term Commercial Papers
a. During the effectivity of the
underwriting agreement, should the issuer
fail to pay in full any interest due on, or
principal of long-term commercial paper
APP. 13
05.12.31
upon demand at stated maturity date, the

Papers shall be automatically suspended.
The underwriter shall, within the next
working day, notify the SEC thereof, and
the SEC shall forthwith issue a formal
Cease and Desist Order enjoining both
the issuer and the underwriter from
further issuing or underwriting long-term
commercial papers.
b. Upon the expiration of the
underwriting agreement, it shall be the
responsibility of the issuer to notify the SEC
that it failed to pay in full any interest due
on, or principal of, long-term commercial
paper upon demand at stated maturity date
and has accordingly automatically
suspended the issuance of its long-term
commercial papers. Within the next
working day, the SEC shall forthwith issue
a formal Cease and Desist Order enjoining
the issuer from further issuing long-term
commercial papers.
c. Whenever necessary to implement
the monetary and credit policies
promulgated from time to time by the
Monetary Board of the BSP, the SEC may
suspend the Authority to Issue Long-Term
Commercial Papers, or reduce the
authorized amount thereunder, or schedule
the maturities of the registered long-term
commercial paper to be issued.
Sec. 12. Basic Features of Registered
Commercial Papers
a. All registered commercial paper
instruments shall have a standard format,
serially pre-numbered, and denominated.
The instrument shall state, among others,
the debt ceiling of the registrant and a notice
that information about the registrant
submitted in connection with the
registration and other reportorial
requirements from the issuer is available
at the SEC and open to public inspection
and that the issuer is not authorized by the
BSP to perforrm quasi-banking functions.
b. A specimen of the proposed

commercial paper instrument shall be
submitted to the SEC for approval of the
text thereof.
c. The instrument approved by the
SEC shall be printed by an entity authorized
by the SEC and shall be released by the
SEC to the issuer.
Sec. 13. Minimum Principal Amount. The
minimum principal amount of each
registered long-term commercial paper
instrument shall not be lower than the
amounts indicated in the following
schedule:
a. Up to two years
P100,000
b. Over two years but less
than four years
50,000
c. Four years or more
20,000
Sec. 14. Fees. Every registrant shall pay the
following fees.
a. Upon application for registration, a
filing fee of 1/20 of 1% based on total
commercial paper proposed to be issued,
but not to exceed P75,000.
b. For issuers of commercial papers
exempt under Section 8 hereof, an annual
exemption fee of P10,000.
Sec. 15.Periodic Reports
a. Issuers of registered long-term
commercial papers, through their
underwriters and those exempt under Sec.
8 hereof, shall submit the following reports
in the form prescribed by the SEC:
1) Mothly reports on long-term
commercial papers outstanding as at the
end of each month to be submitted within
ten (10) working days following the end of
the reference month;
2) Quarterly reports on long-term
commercial
paper
transactions,
accompanied by an interim quarterly
financial statement to be submitted within
thirty (30) calendar days following the end
of the reference quarter; and
APP. 13
05.12.31
3) Actual quarterly cash flow statement

to be submitted within ten (10) working days
following the end of the reference quarter.
b. These periodic reports shall be
signed under oath by the corporate officers
authorized, pursuant to a board resolution
previously filed with the SEC.
c. Issuers whose offices are located in
the provinces may, through their
underwriters, submit their reports to the
nearest extension office of the SEC.
Sec. 16. Administrative Sanctions. If the
SEC finds that there is a violation of any of
these Rules and Regulations and
implementing circulars or that any issuer,
in a registration statement and its supporting
papers, as well as in the periodic reports
required to be filed with the SEC and the
BSP, has made any untrue statement of a
material fact or omitted to state any material
fact required to be stated therein or
necessary to make the statements therein
not misleading, or refuses to permit any
lawful examination into its corporate affairs,
the SEC shall, in its discretion, impose any
or all of the following sanctions:
a. Suspension or revocation, after
proper notice and hearing, of the certificate
of Registration and Authority to Issue
Commercial Papers;
b. A fine in accordance with the
guidelines that the SEC shall issue from time
to time: Provided, however, That such fine
shall in no case be less than P200 nor more
than P50,000 for each violation, plus not
more than P500 for each day of continuing
violation. Annex "B" hereof shall initially
be the guidelines on the scale of fines;
c. Other penalties within the power
of the SEC under existing laws; and
d. The filing of criminal charges against
the individuals responsible for the violation.
Sec. 17. Cease and Desist Order
a. The SEC may, on its own motion or
upon verified complaint by an aggrieved
party, issue a Cease and Desist Order ex

parte, if the violation(s) mentioned in Sec.
16 hereof may cause great or irreparable
injury to the investing public or will amount
to palpable fraud or violation of the
disclosure requirements of the Revised
Securities Act and of these Rules and
Regulations.
b. The issuance of such Cease and
Desist Order automatically suspends the
Papers.
c. Such Cease and Desist Order shall
be confidential in nature until after the
imposition of the sanctions mentioned in
Sec. 16 hereof shall have become final and
executory.
d. Immediately upon the issuance of
an ex parte Cease and Desist Order, the
SEC shall notify the parties involved, and
schedule a hearing on whether to lift such
order, or to impose the administrative
sanctions provided for in Sec. 16 not later
than fifteen (15) days after receipt of
notice.
Sec. 18. Repealing Clause. The Rules and
Regulations supersede the Rules on
Registration of Long-Term Commercial
Papers and Bonds dated 15 October 1976
and all the amendments to said Rules except
as provided in Sec. 19 hereof. All other rules,
regulations, orders, memoranda circular of
the SEC, which are inconsistent herewith
are likewise hereby repealed or modified
accordingly.
Sec. 19. Transitory Provision
a. Any Authority to Issue or Certificate
of Exemption to Register Long-term
Commercial Papers, granted under the Rules
on Registration of Long-Term Commercial
Papers dated 15 October 1976, valid and
subsisting as of the date of the effectivity of
these Rules, shall remain valid with respect
only to all outstanding issues until such
issues are retired or redeemed.
APP. 13
05.12.31
b. The SEC may, at its discretion and

subject to such conditions it may impose,
authorize issuance of any unissued portion
of the issuer's approved long-term debt
ceiling solely for refinancing of maturing
long-term commercial paper issue for a
period not beyond fifteen (15) months from
the effectivity date of these Rules.
APPROVED:
(Sgd.) JOSE B. FERNANDEZ

Chairman
Monetary Board of the Central Bank
of the Philippines
Sec. 20. Effectivity. These Rules and

Regulations shall take effect fifteen (15)
days after publication in two newspapers
of general circulation in the Philippines.
Mandaluyong, Metro-Manila, Philippines,
17 May 1984.
(Sgd.) MANUEL G. ABELLO

Chairman
(Sgd.) CESAR E. A. VIRATA

Minister
Ministry of Finance
(Ed. Note: Annexes "A" and "B" are not

reproduced in this Appendix.)
APP. 14
05.12.31
NEW RULES ON REGISTRATION OF

SHORT-TERM COMMERCIAL PAPERS
(Appendix to Secs. X234.8/X348)
Pursuant to Presidential Decree No.
678, as amended by Presidential Decree
No. 1798, and other existing applicable
laws, the SEC hereby promulgates the
following new Rules and Regulations
governing short-term commercial papers,
in the interest of full disclosure and
protection of investors and lenders, in
accordance with the monetary and credit
policies of the BSP.
Section 1. Scope. These Rules and
Regulations shall apply to short-term
commercial papers issued by corporations.
Sec. 2. Definition. For the purpose of these
Rules, the following definitions shall apply:
(a) Commercial paper is an evidence of
indebtedness of any corporation to any
person or entity with a maturity of three
hundred sixty-five (365) days or less.
(b) Interbank loan transactions shall
refer to borrowings between and among
banks and non-bank financial intermediaries
duly authorized to perform quasi-banking
functions.
(c) Issue means creation of a
commercial paper and its actual or
constructive delivery to the payee.
Sec. 3. Registration of Commercial Papers
Any corporation desiring to issue
commercial papers shall apply for
registration with, and submit to, the SEC the
following:
(a) Ordinary Registration;
(1) Sworn Registration Statement in the
prescribed form;
(2) Board resolution signed by majority
of its members (a) authorizing the issue of
commercial paper, (b) indicating the aggregate
amount to be applied for, (c) providing that
the registration statement shall be signed

by the principal executive officer, the
principal operating officer, the principal
financial officer, the comptroller, or
principal accounting officer, or persons
performing similar functions, and (d)
designating at least two senior officers with
a rank of vice-president or higher, or their
equivalent, to sign the commercial paper
instrument to be issued;
(3) The latest audited financial
statements; and should the same be as of
a date more than three (3) months prior
to the filing of the registration statement,
an audited financial statement as of the
end of the immediately preceding month:
Provided, however, That such unaudited
financial statements shall be certified
under oath by the accountant and the
senior financial officer of the applicant,
duly authorized for the purpose, and
substituted with an audited financial
statement within 120 days after the end
of the applicant's fiscal year.
(4) Schedules, based on sub-section (3)
above, in the form attached as Annex "A";
(5) A committed credit line agreement
with a bank, or any financial institution
which may be qualified subsequently by the
BSP, earmarked specifically for repayment of
aggregate outstanding commercial paper
issues on a pro-rata basis, with the following
features:
(i) A firm, irrevocable commitment to
make available funds to cover at least 20%
of the aggregate commercial papers
outstanding at any time: Provided, That if
the commitment is extended by a group,
there shall be a lead bank or any financial
subsequently by the BSP acting for the
group;
APP. 14
05.12.31
(ii) The commitment shall be effective

for as long as the issues are outstanding and
may be renewed by the bank or any
financial institution which may be qualified
subsequently by the BSP;
(iii) The request for drawdown shall
be addressed to the bank or any financial
subsequently by the BSP, which request
shall be duly signed by a member of the
board of directors and a senior financial
officer of the commercial paper issuer,
duly authorized for the purpose by an
appropriate board resolution, which
shall also provide for the designation of
the alternate signatories (likewise a
member of the board of directors and a
senior financial officer);
(iv) A provision that availments shall be
allowed only for repayment of commercial
papers which are due and payable in
commercial paper;
(v) Notwithstanding the foregoing
requirements for a committed credit line
with a bank, or any financial institution
which may be qualified subsequently by
the BSP, any corporation desiring to issue
commercial papers may be exempted
from compliance therewith by the SEC,
should it meet all of the following
financial ratios based on consolidated
audited financial statements for the
immediate past three (3) years:
1) Average current ratio shall be at
least 1.2:1 computed as follows:
Current Assets
Current Ratio = ---------------------------Current Liabilities
Average acid-test ratios shall be at least
0.5:1 computed as follows:
Cash, receivables, and
marketable securities
Acid-test ratio = ____________________
Current Liabilities
2) Average solvency position shall be

one whereby total assets must not be less
than total liabilities;
3) Average net profit margin shall be
at least 3% computed as follows:
Net income after income
tax, corporate development
taxes, and other non-cash
Acid-test ratio =
charges
Net sales or revenues
OR
Average annual return on equity shall
be at least 8% computed as follows:
Net income after income
tax, corporate development
taxes, and other non-cash
Return on equity =
charges
Total stockholder's equity
4) Average interest service coverage

ratio shall be at least 1.2:1 computed as
follows:
Net income-before-interest
expense, income tax, corporate
Interest service
development taxes,
coverage ratio = and other non-cash charges
Interest expense
5) Debt-to-equity ratio shall not exceed

2.5:1.
The SEC may, in its discretion, consult
with industry organization(s) such as
Investment Houses Association of the
Philippines (IHAP) and Bankers Association
of the Philippines (BAP) and/or the Credit
Information Bureau, Inc.
(6) A selling agreement for the
commercial paper issues with a universal
bank or an investment house, or any
financial institution which may be
qualified subsequently by the BSP, with
minimum conditions that the selling agent,
among others, shall be responsible for
APP. 14
05.12.31
ensuring that the issuer observes the

provisions of these rules pertaining to the
use of proceeds of the committed credit line
and, with the issuer, shall be jointly
responsible for complying with all
reportorial requirements of the SEC and the
BSP in connection with the commercial
paper issue, it being understood that the
primary responsibility for the submission of
the report to said regulatory agencies is upon
the selling agent: Provided, however, That
if the commercial paper issuer is unable to
provide the information necessary to meet
such reportorial requirements, the selling
agent shall, not later than two (2) working
days prior to the date when the report is
due, notify the SEC of such inability on the
part of the issuer: Provided, finally, That if
the selling agreement is with a group,
composed of universal banks and/or
investment houses or any financial
institutions which may be qualified
subsequently by the BSP, there shall be a
syndicate manager acting and responsible
for the group.
(7) Income statements for the immediate
past three (3) fiscal years audited by an
independent certified public accountant:
Provided, That if the applicant has been in
operation for less than three years, it shall
submit income statements for such number
of years that it has been in operation.
(8) A printed copy of a preliminary
prospectus approved by the applicant's
Board of Directors which, among others,
shall contain the following:
(i) A statement printed in red on the
left-hand margin of the front page of the
following tenor:
"A registration statement relating to
these short-term commercial papers has
been filed with, but has not yet been
approved by, the SEC. Information contained
herein is subject to completion or
amendment. These short-term commercial
papers may not be sold nor may offer to buy
be accepted prior to the time the registration
statement is approved. This preliminary

prospectus shall not constitute an offer to
buy nor shall there be any sale of these
commercial papers in the Philippines as
such offer, solicitation, or sale is prohibited
prior to registration under the Securities Act,
as amended by P.D. No. 678 and P.D. No.
1798."
(ii) Aggregate maximum amount
applied for, stated on the front page of the
prospectus;
(iii) Description and nature of the
applicant's business;
(iv) Intended use of proceeds;
(v) The nature of the firm,
irrevocable, and committed credit line, the
amount of the line which shall be at least
20% of the aggregate outstanding
commercial paper issues, proceeds of
which shall be allocated on a pro-rata
basis to the aggregate outstanding
commercial paper issue (regardless of the
order of their maturities), and the manner of
availments, as stipulated in the credit line
agreement between the bank and the issuer;
(vi) The provision in the selling
agreement naming the selling agent and the
responsibilities of the selling agent in, the
issuer of the proceeds of the bank committed
credit line and the reportorial requirements
under these rules;
(vii) Other obligations of the
commercial paper issuer classified by
maturities (maturing within six (6) months;
from six (6) months to one (1) year; over one
(1) year; and past-due amounts);
(viii) Encumbered assets;
(ix) Directors,
officers,
and
stockholders owning 2% or more of the total
subscribed stock of the corporation,
indicating any advance to said directors,
officers and stockholders;
(x) List of entities where it owns more
than 33-1/3% of the total equity, as well as
borrowings and advances to said entities;
(xi) Financial statements for the
immediate past three (3) fiscal years audited
APP. 14
05.12.31
by an independent certified public

accountant: Provided, That if the applicant has
been in operation for less than three (3) years,
it shall submit financial statements for such
number of years that it has been in operation.
(b) Special Registration
In the case of special registration
provided for under Section 10 hereof, the
following shall, in addition to the
immediately preceding requirements, be
prepared and submitted by the selling agent
on behalf of the applicant:
(1) Projected annual cash flow
statement as of the date of filing, presented
on a quarterly basis, supported by schedules
on actual maturity patterns of existing
receivables and liabilities (under six (6)
months, six (6) months to one (1) year, over
one (1) year, and past-due amounts) and
inventory turnover as of the end of the month
prior to the filing of the registration
statement; and
(2) Complemetary financial ratios for
each of the immediate past three (3) fiscal
years:
(i) Ratio of (a) the total of cash on hand,
marketable securities, current receivables to
(b) the total of current liabilities;
(ii) Debt-to-equity ratio, with debt
referring to all kinds of indebtedness,
including guarantees;
(iii) Ratio of (a) net income after taxes to
(b) net worth;
(iv) Net profits-to-sales ratio; and
(v) Such other financial indicators as
may be prescribed by the SEC. These
additional data shall likewise be
incorporated in the prospectus.
(c) The SEC may, whenever it deems
necessary, impose other requirements in
addition to those enumerated in subsections
(a) and/or (b) above.
Sec. 4. Commercial Papers Exempt Per Se
The following specific debt instruments are
exempt per se from the provisions of these
Rules:
(a) Evidence of indebtedness arising

from interbank loan transactions;
(b) Evidence of indebtedness issued by
the national and local governments;
(c) Evidence of indebtedness issued to
the BSP under its open market and/or
rediscounting operations;
(d) Evidence of indebtedness issued by
the BSP, PNB, DBP, LBP, GSIS, and the
Social Security System (SSS);
(e) Evidence of indebtedness issued to
the following primary institutional lenders:
banks, non-bank financial intermediaries
authorized to engaged in quasi-banking
functions, IHs, financing companies,
investment companies, non-stock savings
and loan associations, building and loan
associations, venture capital corporations,
special purpose corporations referred to in
Central Bank Monetary Board Res. No.
1051 dated 19 June 1981, insurance
companies, government financial
institutions, and pawnshops; and other
entities that may be classified as primary
institutional lenders by the BSP, in
consultation with the SEC: Provided, That
all such evidences of indebtedness shall
be held on to maturity and shall neither
be negotiated nor assigned to any one
other than the BSP and the DBP with
respect to private development banks in
connection with their rediscounting
privilege;
(f) Evidence of indebtedness the total
outstanding amount of which does not
exceed P5.0 million and issued to not
more than ten (10) primary lenders other
than those mentioned in subsection (e)
above, which evidence of indebtedness
shall be payable to a specific person and
not to bearer and shall neither be
negotiated nor assigned but held on to
maturity;
(g) Evidence of indebtedness
denominated in foreign currencies; and
(h) Evidence of indebtedness arising
from bona fide sale of goods or property.
APP. 14
05.12.31
Sec. 5. Other Commercial Papers Exempt

from Registration. Commercial papers issued
by any financial intermediary authorized by
the BSP to engage in quasi-banking functions
shall be exempt from registration under Sec.
3, but shall be subject to payment of the
exemption fee, as provided under Sec. 15, and
to the reportorial requirements under Sec. 17,
all under these Rules.
outstanding liabilities of the applicant, does

not exceed three hundred percent (300%)
of networth based on the financial statements
referred to under Section 3(a) (3), the
commercial papers shall be registered upon
compliance with the requirements specified
in Section 3(a) hereof. The same principle
shall apply in the case of renewal of the
Authority to Issue Commercial Paper.
Sec. 6. Prohibition. No commercial paper,

except of a class exempt under Secs. 4 and
5 herof, shall be issued unless such
commercial paper shall have been registered
under these Rules: Provided, That no
registered commercial paper issuer may issue
commercial paper exempt per se under
Section 4 (f) hereof.
Sec. 10. Special Registration

If the value of commercial paper applied
for exceeds 300% of networth, as
contemplated in the preceding section, it
shall be subject to compliance with the
requirement under Sec. 3(b) hereof.
Sec. 7. Compliance with Bangko Sentral

Quasi-Banking Requirements. Nothing in
these Rules shall be construed as an
exemption from or a waiver of the applicable
BSP rules/regulations or circulars governing
the performance of quasi-banking functions
or financial intermediaries duly authorized
to engage in quasi-banking activities. Any
violation of said BSP rules/regulations or
circulars shall be considered a violation of
these rules and regulations.
Sec. 8. Action on Application for Registration
(a) Within sixty (60) days after receipt
of the complete application for registration,
the SEC shall act upon the application and
shall, in the appropriate case, grant the
applicant a Certificate of Registration and
Authority to Issue Commercial Papers.
(b) The SEC shall return any application
for registration, in cases where the
requirement of applicable laws and
regulations governing the issuance of
commercial papers have not been complied
with, or for reasons which shall be so stated.
Sec. 9. Ordinary Registration
If the value of commercial papers
applied for, when added to the total
Sec. 11. Validity Period of the Authority to

Issue Commercial Paper. The authority to
issue commercial papers shall be valid for a
period of 365 days which shall be indicated
in the Authority to Issue Commercial Paper,
provided that renewal thereof, upon
application filed at least forty five (45) days
prior to its expiry date, may be for a period
shorter than 365 days.
Sec. 12. Conditions of the Authority to
Issue Commercial Paper
(a) In the event that the commercial
paper issuer fails to pay in full any
commercial paper upon demand at stated
maturity date, the Authority to Issue
Commercial Paper is automatically
suspended. The selling agent shall, within
the next working day, notify the SEC thereof,
and the SEC shall forthwith issue a formal
Cease and Desist Order, enjoining both the
issuer and the selling agent from further
issuing or selling Commercial papers.
(b) Whenever necessary to implement the
monetary and credit policies promulgated from
time to time by the Monetary Board of the BSP,
the SEC may suspend the Authority to Issue
Commercial Paper, or reduce the authorized
amount thereunder, or schedule the maturities
of the registered commercial paper to be
issued.
APP. 14
05.12.31
Sec. 13. Basic Features of Registered

Commercial Papers
(a) All registered commercial paper
instruments shall have a standard format,
serially pre-numbered, and denominated.
The instrument shall state, among others,
the debt ceiling of the registrant and a notice
that information about the registrant
submitted in connection with the
registration and other reportorial
requirements from the issuer is available at
the SEC and open to public inspection and
that the issuer is not authorized by the BSP
to perform quasi-banking functions.
(b) A specimen of the proposed
commercial paper instrument shall be
submitted to the SEC for approval of the text
thereof.
(c) The approved instrument shall be
printed by the Bangko Sentral Security Printing Plant pursuant to a prior authorization
from the SEC, and shall be released by the
SEC to the issuer.
Sec. 14. Minimum Maturity Value. The
maturity value of each registered
commercial paper instrument shall not be
lower than P300,000.
Sec. 15. Fees. Every registrant shall pay
the following fees:
(a) Upon application for registration,
and for renewals thereof, a filing fee of not
more than 1/50th of 1% based on the total
commercial paper proposed to be issued.
(b) For issuers of commercial paper
exempt under Sec. 5 hereof, an annual
exemption fee of P10,000.
Sec. 16. Notice of availment. Whenever
the credit line is drawn upon, the selling
agent and/or issuer shall, within two (2)
working days immediately following the
date of drawdown, notify the SEC of such
event, indicating the amount availed of
and the total availment as of that given
time.
Sec. 17. Periodic Reports

(a) Issuers of registered commercial
papers and those exempt under Sec. 5 hereof
shall submit to the SEC and the BSP the
following reports in the priscribed form:
(1) Monthly reports on commercial
papers outstanding as at the end of each
month, to be submitted within ten (10)
working days following the end of the
reference month;
(2) Quarterly reports on commercial
paper transactions accompanied by an
interim quarterly financial statement to be
submitted within thirty (30) calendar days
following the end of the reference quarter; and
(3) For issuers whose application for
registration was under Sec. 10 hereof, the
projected quarterly cash flow statements with
the corresponding quarter's actual figure to
be submitted within ten (10) working days
following the end of the reference quarter;
(b) These periodic reports shall be
signed under oath by the corporate officers
authorized pursuant to a board resolution
previously filed with the SEC;
(c) Issuers whose offices are located in
the provinces may submit their reports to the
nearest extension offices of the SEC.
Sec. 18. Administrative Sanctions. If the
SEC finds that there is a violation of any of
these Rules and Regulations and implementing
circulars or that any issuer, in a registration
statement and its supporting papers, as well
as in the periodic reports required to be filed
with the SEC and the BSP, has made any untrue
statement of a material fact, or omitted to state
any material fact required to be stated therein
or necessary to make the statements therein
not misleading, or refuses to permit any lawful
examination into its corporate affairs, the SEC
shall, in its discretion, impose any or all of the
(a) Suspension or revocation, after
proper notice and hearing, of the Certificate
of Registration and Authority to Issue
Commercial Paper;
APP. 14
05.12.31
(b) A fine in accordance with the

guidelines that the Commission shall issue
from time to time: Provided, however, That
such fine shall in no case be less than P200
or more than P50,000 for each violation,
plus not more than P500 for each day of
continuing violation. Annex "B" hereof shall
initially be the guideline on the scale of fines;
(c) Other penalties within the power of
the Commission under existing laws; and
(d) The filing of criminal charges against
the individuals responsible for the violation.
Sec. 21. Transitory Provision. Any Authority

to Issue Commercial Papers, valid and
subsisting as of the date of the effectivity of
these Rules and Regulations, shall remain
valid and upon its expiration may, at the
discretion of the Commission and subject
to such conditions as it may impose, be
renewed on the basis of the Rules of
Registration of Commercial Papers dated
10 December 1975 for an aggregate period
not exceeding fifteen (15) months from its
expiry date.
Sec. 19. Cease and Desist Order. T h e

Commission may, on its own motion or
upon verified complaint by an aggrieved
party, issue a Cease and Desist Order ex
parte if the violation(s) mentioned in Sec.
18 may cause great or irreparable injury to
the investing public or may amount to
palpable fraud, or violation of the disclosure
requirements of the Securities Act and of
these Rules and Regulations.
The issuance of such Cease and Desist
Order automatically suspends the Authority
to Issue Commercial Papers.
Such Cease and Desist Order shall be
confidential in nature until after the imposition
of the sanctions mentioned in Sec. 18 shall
have become final and executory.
Immediately upon the issuance of an ex
parte Cease and Desist Order, the
Commission shall notify the parties involved,
and schedule a hearing on whether to lift
such order, or to impose the administrative
sanctions provided for in Sec. 18 not later
than fifteen (15) days after receipt of notice.
Sec. 22. Effectivity. These Rules and

Regulations shall take effect on 11
December 1981.
Mandaluyong,
Metro
Manila,
Philippines 8 December 1981
Sec. 20. Repealing Clause. These Rules

and Regulations supersede the Rules on
Registration of Commercial Papers dated 10
December 1975, and all the amendments
to said Rules. All other rules, regulations,
orders, and memoranda circular of the
Commission which are inconsistent
herewith are likewise hereby repealed or
modified accordingly.
(Sgd.) MANUEL G. ABELLO

Chairman
APPROVED:
(Sgd.) JAIME C. LAYA

Chairman
Monetary Board of the Central Bank
of the Philippines
(Sgd.) ALFREDO PIO de RODA, JR.

Acting Minister
Minister of Finance
APP. 15
05.12.31
LIST OF RESERVE - ELIGIBLE AND NON-ELIGIBLE SECURITIES

A. Government securities ELIGIBLE as

reserves
I. Direct obligations of the Government of
the Republic of the Philippines eligible as
reserve against peso deposit liabilities and
deposit substitute liabilities:
a. 4% PWED Bonds all outstanding
series
b. 4% NPC Bonds (26th - 50th Series
except 39th Ser. which bear 6% - obligation
assumed by the National Government)
c. (1) 4% Treasury Bonds (30th S; 57th
S; 59th-71st S; 78th-93rd S)
(2) Treasury Bonds with less than
4% per annum interest
considered eligible by reason of
expressed BSP limited support
to original purchaser:
(3) 2% T/Bond L of 1973/2003 1st
Series (1st & 2nd Rel.)
(4) 3% T/Bond L of 1978/2008 55th
Series (1st Release)
(5) 4% T/bond L of 1979/2009 55th
Series (2nd Release)
(6) 3-1/4% T/Bond L of 1974/1999
6th Series (1st. & 2nd Rel.)
(7) 3-1/4% T/Bond L of 1978/2003
54th Series (1st-3rd Rel.)
d. 4% Treasury Notes L of 1980/1995
115th Series
e. Bonds made specifically eligible to
its holders only:
(1) 4% Treasury Capital Bonds DBP only
(2) 2% Capital Treasury Bonds PNB only
II. Bonds and other evidences of indebtedness
bearing interest rate of four percent (4%) per
annum, issued by government-owned or

controlled corporations, political subdivisions
and instrumentalities likewise eligible as
reserves against peso deposit liabilities and
deposit substitute liabilities:
1.1 4% NAWASA Bond s (1st to 9th &
13th Series)
III. The following government securities
bearing more than four percent (4%) per
annum interest, whether Bangko Sentral
supported or not, if BEING USED BY
BANKS/NBQBs as reserve against deposit
substitute liabilities as of 17 January 1977
shall continue to be eligible as such:
Provided, That whenever said securities
shall have matured, they shall be replaced
by securities carrying the features/conditions
enumerated under Circular No. 630, dated
8 November 1978, as amended:
6% PWED Bonds
6% NPC Bond
7% NPC Bond
8-1/2% NPC Bonds
7% MWS Capital Bonds
6% NIA Bonds
4 1/2% Treasury Bonds
4 7/10% Treasury Bonds
5% Treasury Bonds
6% Treasury Bonds
7% Treasury Bonds
10-3/4% Treasury Notes 9% Treasury Notes

10-1/2% Treasury Notes 10-3/4% Treasury Notes 11-3/4% Treasury Notes 6% NAWASA Bonds
10% EPZA Bonds
10-3/4% EPZA Bonds -
All outstanding issues

-do-do13th - 22nd Series
except 15th Series
-do-do7th Series
9th Series
8th Series
all outstanding issues
except 15th Series
60th and 65th Series
101st Series (1st &
2nd Release)
56th and 61st Series
59th Series
11th, 12th and 1st
Series
9th - 11th Series
3rd - 8th Series
APP. 15
05.12.31
B. The following government securities are

NOT ELIGIBLE: whatsoever for reserve
purposes:
Negotiable Land Certificate (NLC)
Cultural Center of the Philippines (CCP)
Bonds
Philippine Charity Sweepstakes Office
(PCSO) Bonds
Public Estate Authority (PEA) Bonds
National Development Company (NDC)
Bonds
National Housing Authority (NHA) Bonds
National Food Authority (NFA) Bonds
NHMFC Bahayan Certificates
Light Rail Transit Authority (LRTA) Notes CBCIS
(Auctioned/discounted) - 24th -29thSeries
CBCIs (Negotiated) A to D-1 Series and 5th
to 7th Series (18 months)
CBCIs 10-1/2% Special Series 1st - 32nd
Series
Central Bank Bills (Negotiated/discounted)
Treasury Bills (Negotiated/discounted)
Treasury Notes and Treasury Bonds bearing
less than four percent (4%) per annum,
but not given BSP support as follows:
3% T/Bond L of 1976/2001 26th, 27th, 31st 34th 46th & 47th Series
3% T/Bond L of 1977/2002 49th Series
3-1/4% T/Bond L of 1974/1999 6th Series
3rd & 4th Release
5th Release
3-1/4% T/Bond L of 1975/2000 21st Series
1st Release
2nd Release
1st & 2nd Release
1st & 34th Release
3-3/4% T/Bond L of 1973/2003 2nd Series
Treasury Notes
2% T/Notes L of 1976/1991 79th Series
& 125th Series
3-1/2% T/Notes L of 1982/1997 Special Series
1st-24th Release
Treasury Bonds
2% T/Bond L of 1973/2003 4th Series
2-3/4% T/Bond L of 1974/1986 7-A & 7-B Series
APP. 16
05.12.31
IMPLEMENTING GUIDELINES OF THE COUNTRYSIDE

FINANCIAL INSTITUTIONS ENHANCEMENT PROGRAM
(Appendix to Sections 2274 and 3274)
Section 1. Statement of Policy Objectives
The CFIEP aims to:
a. raise the capital base of the
countryside financial institutions by
encouraging existing and new investors to
infuse fresh equity into said institutions and
thereby accelerate the government's
economic development efforts;
b. reduce the debt burden of eligible
countryside financial institutions and the
corresponding financial strain on the
government in continually assisting them;
and
c. improve the long-term viability of
the countryside financial institutions and
establish such institutions as an effective
means to mobilize savings and credit.
Sec. 2. Qualified Participants
The Program shall be open to the
following:
a. All
Countryside
Financial
Institutions (CFIs) that meet the eligibility
requirement set by the BSP except those with
unrectified/unaddressed serious irregularities
based on the examination findings of the
BSP.
The term CFIs shall refer to all rural
banks, cooperative banks and thrift banks,
which have their main operations in the
countryside.
b. Thrift banks as may be determined
by the Task Force which have their main
operations in the countryside.
c. Individuals, cooperatives and/or
corporations as may be qualified to make
an investment in the rural bank or qualified
thrift bank.
Sec. 3. Coverage of the Program
All past due borrowings (principal and
interests) with the BSP of the countryside
financial institutions as of 31 December 2001

in the form of rediscounted loans, CB:IBRD
loans other supervised credit program and
special liquidity loans.
Sec. 4. CFIEP Task Force
To effectively attain the objectives
hereinabove cited, the Task Force
constituted under CBP Circular 1315
composed of the Governor of the BSP, the
President of the LBP, the President of the
PDIC, shall continue coordinating all
activities relating to, and oversee the
implementation of the CFIEP.
Sec. 5. Incentives under the Program
As the Task Force may allow,
participants to the Program are entitled to
the following incentives:
a. Exemption from the forty percent
(40%) limitation on voting stockholdings of
any person or persons related to each other
within the third degree of consanguinity or
affinity, cooperatives, or corporations
participating in the program, from the
application of prescribed equity ceiling, as
may be warranted, and for a period not to
exceed twenty (20) years; and
b. Waiver of penalties and other
charges due on arrearages that may be
redeemed under the Program.
Sec. 6. Definition of Terms
As used in these Guidelines:
a. Investor shall refer to individuals,
group of individuals, cooperative and all CFIs
that meet the eligibility requirements set by
the BSP except those CFIs with unrectified/
uncorrected serious irregularities based on
the examination findings of the BSP.
b. Arrearages shall refer to the CFIs
arrearages with BSP as of 31 December 2001
APP. 16
05.12.31
which are eligible for buy-back such as

past due rediscounted loans, special
liquidity loans, CBP-IBRD loans and other
supervised credit programs, including
those other arrearages as the Task Force
may determine.
c. Converted Shares - shall refer to the
arrearages converted into LBP equity in the
form of common and preferred shares pursuant
to BSP Circular Nos. 1143 and 1172.
Sec. 7. Components of the Program
The components of the Program are as
follows:
a. Purchase of CFI Arrearages (Module I)
The investor/CFI stockholders equity
infusion with the CFI shall be used to
purchase negotiable promissory notes
(NPNs) with the LBP valued at twice the
amount actually infused by the investor. The
NPNs, in turn, will be used to redeem
arrearages with the BSP through the PDIC.
The investor/CFI stockholders will then be
issued shares of stock in the CFI equivalent
to the actual amount invested and the
difference between the amount actually
infused and the value of the NPN issued
by the LBP shall be credited to the
investors which actually infused the
capital.
b. Land Bank Counterpart Capital
(Module II)
An eligible CFI is provided access to
LBPs capital infusion program which
essentially involves the matching on a oneto-one basis of CFIs fresh capital infusion.
The LBPs matching equity shall be in
preferred shares redeemable within a period
of five (5) years for Business and Risk
Recovery Modules, and ten (10) years for
the Developmental Module. The cumulative
dividend shall be equal to the average 364day T-Bill rate for the Developmental and
Risk Recovery Modules, and 364-day T-bill
plus three percent (3%) for the Business
Module. Other terms of LBPs investment
will be determined by its board and
operational details will be announced to the

CFIs accordingly.
c. Merger, Consolidation or Acquisition
Incentives (Module III)
Eligible CFIs can avail of incentives
aimed at promoting mergers, consolidations
or acquisitions among CFIs as a means to
develop larger and stronger CFIs which may
(1) Counterpart capital infusion by the
LBP by a ratio of more than one-to-one of
the merged, consolidated or acquired CFIs
total fresh equity;
(2) PDIC financial assistance to
qualified merger, consolidation or
acquisition applicants to augment the capital
infusion required in absorbing the adverse
impact of asset write-downs and other costs
as part of restructuring. The merger,
consolidation or acquisition must involve a
lead bank (with strong capital position and
good track record) acquiring a majority stock
of one (1) or more undercapitalized CFI. The
amount of financial assistance shall be an
amount that would generate income spread
to the surviving or consolidated CFI
equivalent to fifty percent (50%) of the
undercapitalized CFIs eligible nonperforming loans and ROPA or unbooked
valuation reserves as of 31 December 2001,
whichever is higher, over a period of six (6)
years as determined by the BSP;
(3) CFIs availing of the financial
assistance shall submit, among others, a
business plan supported by a six (6) -year
financial projections; and
(4) The term of the loan shall be for a
period of at least six (6) years.
Sec. 8. Qualification to the Program
CFIs, except those with unrectified/
uncorrected serious irregularities based on
the examination findings of the BSP, may
participate in the Program.
a. Under Module I, CFIs with
arrearages as defined in Sec. 6(b) hereof may
qualify.
APP. 16
05.12.31
b. To avail of equity matching program

of the LBP under Module II, the CFI must
meet the following minimum requirements:
(1) A past due loans ratio of not more
than twenty-five percent (25%); and
(2) A loan portfolio at least sixty percent
(60%) of which is in agriculture or ruralbased production activities.
c. Under Module III, PDIC financial
assistance shall be available to merging,
consolidating or acquiring CFIs involving at
least one (1) or more undercapitalized banks.
A separate memorandum shall be issued
on the guidelines for the LBP equity
matching program and PDIC financial
assistance.
d. Investors/CFI stockholders will be
evaluated based on the fit and proper rule
under Sec. X143 and other criteria that the
Task Force may set.
CFIs investing in undercapitalized CFIs
should have a minimum unimpaired capital
as defined under Secs. X106 and X116 and
a history of sustained profitability for a
period of at least five (5) years.
e. Fresh investments should at least
cover the additional capital to achieve the
required minimum risk-based capital
adequacy ratio of ten percent (10%) after
adequate provision for losses based on the
latest examination findings of the
appropriate SED.
Sec. 9. Application Procedures*
a. Purchase of Arrearages under Module I
(1) Investor/CFI stockholder files
application (CFIEP Form No. 1-A) with the
LBP together with the following
requirements:
(a) a proposal for financial strengthening
accompanied by a three (3)-year financial
projection and a subsequent two (2)-year
business plan;
(b) the designation of PDIC by the CFI
as the attorney-in-fact to receive the NPN
from LBP and to exchange the NPN for

arrearages of the CFI;
(c) other requirements as the Task Force
may deem necessary.
(2) Simultaneously, the investor/CFI
stockholder deposits cash with the LBP in
an amount equivalent to fifty percent (50%)
of the arrearages to be redeemed, which
shall be placed in a special account pending
approval of application by the Task Force.
(3) Upon approval of the application,
the CFI shall be duly notified by the Task Force
directly or through the LBP Regional Office.
(4) The LBP shall issue a Negotiable
Promissory Note in favor of the CFI, with a
ten (10)-year term or such period where a
maturity value will be equivalent to twice
the amount invested.
(5) The CFI, through the PDIC as
attorney-in-fact, shall exchange the NPN for
the CFI arrearages equivalent to the amount
of the NPN.
(6) The CFI shall issue stock certificates
in favor of the investor/s equivalent to the
total fresh capital infusion. The difference
between the amount actually infused and the
value of the NPN issued by the LBP shall be
credited as equity of the investor who
actually infused the capital.
(7) Applicants who do not qualify shall
be reimbursed for their deposits including
accrued interest earned.
b. LBP Counterpart Capital under
Module II
Interested CFIs shall submit the
requirements listed in CFIEP Form No. 2-B
to the LBP.
c. Merger and Consolidation under
Module III
The merging/consolidating/acquiring
CFIs shall formulate a merger/consolidation/
acquisition plan which shall be an integral
component of the CFIEP application
documents to be submitted to the LBP
Regional Office.
* Application deadline 31 March 1992
APP. 16
05.12.31
Sec. 10. Applicability of Relevant Laws

Nothing herein shall be construed as
a waiver by the BSP from proceeding
under Section 30 of R.A. No. 7653 or other
pertinent provisions in said Act, R.A. No.
7353 (Rural Banks Act of 2000), and R.A.

No. 7906 (Thrift Banks Act) in the event
that circumstance shall exist as would
warrant action under such provisions of
law.
APP. 17
05.12.31
RULES GOVERNING ISSUANCE OF MORTGAGE/

CHATTEL MORTGAGE CERTIFICATE BY THRIFT BANKS
(Appendix to Subsec. 2283)
A. With prior approval of the Monetary
Board, thrift banks, whether or not
authorized to engage in quasi-banking
functions, may issue and deal in mortgage
and chattel mortgage certificates exclusively
for the purpose of financing the following
loans:
1. Equipment loans;
2. Mortgage loans for acquisition of
machinery and other fixed installations;
3. Loans for the conservation,
enlargement or improvement of productive
properties; and
4. Real estate mortgage loans (a) for the
construction, aquisition, expansion or
improvement of rural and urban properties;
(b) for the refinancing of similar loans and
mortgages; and (c) for such other purposes
as may be authorized by the Monetary Board.
B. The certificates shall be issued at a
minimum denomination of P20,000 for a
term of at least four (4) years.
C. The amount of certificates which a thrift
bank may issue shall not exceed an amount
equivalent to fifty percent (50%) of the total
amortizations falling due during the
projected term of the certificates on the
mortgages/chattel mortgages pooled for the
purpose of the issue.
D. The maturity of the certificates shall in
no case be later than any of the maturities
of the mortgages/chattel mortgages
constituting the pool. Mortgages and chattel
mortgages on past due loans as defined
under existing regulations shall not be
eligible for the pool.
E. All outstanding certificates shall
constitute a prior preferred lien on payments
or amortizations on the mortgages and

chattel mortgages constituting the pool.
F. If at any time, during the term of the
certificates, the aggregate outstanding
amount thereof should exceed the ceiling as
provided in Item C above on account of any
deficiency or inadequacy of the mortgages
or chattel mortgages resulting from
prepayments by the mortgage or chattel
mortgages becoming past due as determined
by existing regulations, the issuing bank shall
provide additional mortgages or chattel
mortgages as are current necessary to cover
the deficiency.
G. The issuing thrift bank shall enter into
an agreement with another bank which shall
constitute the latter as custodian of the
mortgages/chattel mortgages pooled for the
purpose of the issue, as transfer agent of the
certificates, and as its paying and securing
agent, and in general shall specifically state
(a) the rights, obligations and liabilities of
the issuing bank and custodian banks; and
(b) the rights of the holders of the certificates;
(c) the mortgages making up the pool; and
(d) the aggregate value of the certificates that
may be issued.
H. The agreement shall be available for
inspection at reasonable hours during business
days to the holders of the certificates, or their
duly authorized representatives.
I. The certificates shall have the following
minimum features:
1. The certificate shall be 13 inches in
length and 8.5 inches in width, and shall be
serially pre-numbered and printed on
security paper with safeguards against
alterations and/or falsifications;
APP. 17
05.12.31
2. The description of the certificate, i.e.,

Mortgage Certificate or Chattel Mortgage
Certificate, shall be printed on the upper
center margin of the certificate;
3. The certificate shall indicate its date
of issuance, the amount or denomination
thereof, the rate of interest expressed as a
percentage on an annual basis, and the term
or maturity thereof;
4. The certificate shall contain a
conspicuous notice at the lower margin
thereof that the same is not insured by the
(PDIC); and
5. The copy of the certificate to be
issued to the investor shall be stamped or
printed with the word Original and the
copies retained by the issuer as Duplicate
copy, File copy, or words of similar import.
J. A five percent (5%) reserve shall be
maintained against all issues of mortgage/
chattel mortgage certificates. The Monetary

Board may change the required reserves as
may be necessary.
K. Any thrift bank desiring to apply for
authority to issue mortgage/chattel mortgage
certificates may submit its application to the
appropriate SED of the BSP duly
1. Pro-forma copies of the mortgage/
chattel mortgage certificates proposed to be
issued and the agreement referred to in Item
G thereof;
2. Statement setting forth the details or
particulars of the mortgages/chattel
mortgages to be pooled for purposes of the
issue and the purpose for which the
proceeds will be used; and
3. Other records or data as the
appropriate SED may deem necessary for
the proper evaluation of the banks
application.
APP. 18
08.12.31
GUIDELINES IN IDENTIFYING AND MONITORING

PROBLEM LOANS AND OTHER RISK ASSETS AND
SETTING UP OF ALLOWANCE FOR PROBABLE LOSSES
I. Classification of loans. In addition to
classifying loans as either current or past
due, the same should be qualitatively
appraised and grouped as Unclassified or
Classified.
A. Unclassified loans. These are loans
that do not have a greater-than-normal risk
and do not possess the characteristics
of classified loans as defined below.
The borrower has the apparent ability
to satisfy his obligations in full and
therefore no loss in ultimate collection
is anticipated. The following loans,
among others, shall not be subject to
classification:
1. Loans or portions thereof secured
by hold-outs on deposits/deposit
substitutes maintained in the lending
institution and margin deposits, or
government-supported securities;
2. Loans granted by Philippine
branches of foreign banks to subsidiaries
and affiliates in the Philippines of
multinational companies which are
covered by standby letters of credit
(Standby LC) issued by the bank head
offices in favor of their local branches, and
are current in status: Provided, That the
foreign bank is rated at least AA- or its
equivalent by a BSP-recognized
international credit assessment agency
based on the guidelines for the use of third
party credit assessment as provided in
App. 63b: Provided, further, That the
Standby LC is direct, explicit,irrevocable
and unconditional; and
3. Loans with technical defects and
deficiencies in documentation and/or
collateral
requirements.
These
deficiencies are isolated cases where the
exceptions involved are not material nor
is the banks chance to be repaid or the

borrowers ability to liquidate the loan in
an orderly manner undermined. These
exceptions should be brought to
managements attention for corrective
action during the examination and those
not corrected shall be included in the
Report
of
Examination
under
Miscellaneous Exceptions Loans.
Moreover, deficiencies which remained
uncorrected in the following examination
shall be classified as Loans Especially
Mentioned.
The following are examples of loans to
be cited under Miscellaneous Exceptions
Loans:
a. Loans with unregistered mortgage
instrument which is not in compliance with
the loan approval;
b. Loans with improperly executed
supporting deed of assignment/pledge
agreement/chattel mortgage/real estate
mortgage;
c. Loans with unnotarized mortgage
instruments/agreements;
d. Loans with collaterals not covered
by appraisal reports or appraisal reports not
updated;
e. Loan availments against expired
credit line; availments in excess of credit
line; availments against credit line
without prior approval by appropriate
authority;
f. Loans with collaterals not insured
or with inadequate/expired insurance
policies or the insurance policy is not
endorsed in favor of the bank;
g. Loans granted beyond the limits of
approving authority;
h. Loans granted without compliance
with conditions stated in the approval; and
APP. 18
08.12.31
i. Loans secured by property the title

to which bears an uncancelled annotation
or lien or encumbrance.
B. Classified loans. These are loans
which possess the characteristics outlined
hereunder. Classified loans are subdivided
into (1) loans especially mentioned; (2)
substandard; (3) doubtful; and (4) loss.
1. Loans especially mentioned
These are loans and advances that have
potential weaknesses that deserve
managements close attention. These
potential weaknesses, if left uncorrected,
may affect the repayment of the loan
and thus increase credit risk to the
bank. Their basic characteristics are as
follows:
a. Loans with unlocated collateral
folders and documents including, but not
limited to, title papers, mortgage
instruments and promissory notes;
b. Loans to firms not supported by
board resolutions authorizing the
borrowings;
c. Loans without credit investigation
report/s;
d. Loans not supported by the
documents required under Subsec.
X304.1 except: consumer loans, with
original amounts not exceeding P2.0
million: Provided, That these loans are
current, and are supported by latest ITR
or by BIR Form 2316 or payslips for at
least three (3) months immediately
preceding the date of loan application,
and financial statements submitted for
taxation purposes to the BIR, as may be
applicable, at the time they were granted,
renewed, restructured or extended. For
this purpose, consumer loans include
housing loans, loans for purchase of car,
household appliance(s), furniture and
fixtures, loans for payment of educational
and hospital bills, salary loans and loans
for personal consumption, including
credit card loans;
e. Loans the repayment of which may

be endangered by economic or market
conditions that in the future may affect the
borrowers ability to meet scheduled
repayments as evidenced by a declining
trend in operations, illiquidity, or increasing
leverage trend in the borrowers financial
statements;
f. Loans to borrowers whose
properties securing the loan (previously
well secured by collaterals) have declined
in value or with other adverse information;
g. Loans past due for more than thirty
(30) days up to ninety (90) days; and
h. Loans previously cited as
"Miscellaneous Exceptions" still uncorrected
in the current BSP examination.
2. Substandard. These are loans or
portions thereof which appear to involve a
substantial and unreasonable degree of risk
to the institution because of unfavorable
record or unsatisfactory characteristics.
There exists in such loans the possibility
of future loss to the institution unless given
closer supervision. Those classified as
Substandard must have a well-defined
weakness or weaknesses that jeopardize
their liquidation. Such well-defined
weaknesses may include adverse trends or
development of financial, managerial,
economic or political nature, or a significant
weakness in collateral. Their basic
characteristics are as follows:
a. Secured loans
(1) Past due and circumstances are such
that there is an imminent possibility of
foreclosure or acquisition of the collateral
because of failure of all collection efforts;
(2) Past due loans to borrowers whose
properties securing the loan have declined
in value materially or have been found
with defects as to ownership or other
adverse information; and
(3) Current loans to borrowers whose
audited financial statements show
impaired/negative net worth except for
APP. 18
08.12.31
start-up firms which should be evaluated

on a case-to-case basis.
Loans and advances possessing any of
the above characteristics shall be classified
Substandard at the full amount except
portions thereof secured by hold-outs on
deposits, deposit substitutes, margin
deposits, or government-supported
securities. The portions so secured are not
subject to classification.
b. Unsecured loans
(1) Renewed/extended loans of
borrowers with declining trend in
operations, illiquidity, or increasing
leverage trend in the borrowers financial
statements without at least twenty percent
(20%) repayment of the principal before
renewal or extension; and
(2) Current loans to borrowers with
unfavorable results of operations for two (2)
consecutive years or with impaired/negative
net worth except for start-up firms which
should be evaluated on a case-to-case basis.
c. Loans under litigation;
d. Loans past due for more than ninety
(90) days;
e. Loans granted without requiring
submission of the latest AFS/ITR and/or
statements of assets and liabilities to
determine paying capacity of the borrower;
f. Loans with unsigned promissory
notes or signed by unauthorized officers
of the borrowing firm; and
g. Loans classified as Loans
Especially Mentioned in the last BSP
examination which remained uncorrected
in the current examination.
3. Doubtful. These are loans or
portions thereof which have the
weaknesses inherent in those classified as
Substandard", with the added
characteristics that existing facts,
conditions, and values make collection or
liquidation in full highly improbable and
in which substantial loss is probable. Their
basic characteristics are as follows:
a. Past due clean loans classified as

Substandard in the last BSP examination
without at least twenty percent (20%)
repayment of principal during the
succeeding twelve (12) months or with
current unfavorable credit information;
b. Past due loans secured by
collaterals which have declined in value
materially such as, inventories,
receivables, equipment, and other chattels
without the borrower offering additional
collateral for the loans and previously
classified Substandard in the last BSP
examination;
c. Past due loans secured by real
estate mortgage, the title to which is
subject to an adverse claim rendering
settlement of the loan through
foreclosure doubtful; and
d. Loans wherein the possibility of
loss is extremely high but because of
certain important and reasonably specific
pending factors that may work to the
advantage and strengthening of the asset,
its classification as an estimated loss is
deferred until a more exact status is
determined.
4. Loss. These are loans or portions
thereof which are considered uncollectible
or worthless and of such little value that
their continuance as bankable assets is not
warranted although the loans may have
some recovery or salvage value. The
amount of loss is difficult to measure and
it is not practical or desirable to defer
writing off these basically worthless assets
even though partial recovery may be
obtained in the future. Their basic
characteristics are as follows:
a. Past due clean loans the interest of
which is unpaid for a period of six (6)
months;
b. Loans payable in installments
where amortization applicable to interest
is past due for a period of six (6) months,
unless well secured;
APP. 18
08.12.31
c. When the borrowers whereabouts

is unknown, or he is insolvent, or his
earning power is permanently impaired
and his co-makers or guarantors are
insolvent or that their guaranty is not
financially supported;
d. Where the collaterals securing the
loans are considered worthless and the
borrower and/or his co-makers are
insolvent;
e. Loans considered as absolutely
uncollectible; and
f. Loans classified as Doubtful in
the last BSP examination and without
any payment of interest or substantial
reduction of principal during the
succeeding twelve (12) months or have
current unfavorable credit information
which renders collection of the loan
highly improbable.
C. Credit card receivables. Credit
card receivables shall be classified in
accordance with age as follows:
No. of days
past due
Classification
91 - 120
121 - 180
181 or more
Substandard
Doubtful
Loss
The foregoing is the minimum

classification requirement. Management
may therefore formulate additional specific
guidelines.
II. Investments and Other Risk Assets
A. Investment in debt securities and
marketable equity securities. The
classification, accounting procedures,
valuation and sales and transfers of
investment in all debt securities and
marketable equity securities is in
Appendix 33.
B. Equity investment in affiliates
shall be booked at cost or book value
whichever is lower on the date of acquisition.
If cost is greater than book value, the excess

shall be charged in full to operations or
booked as deferred charges and amortized
as expense over a period not exceeding five
(5) years. Subsequent to acquisition, if there
is an impairment in the recorded value, the
impairment should adequately be provided
with allowance for probable losses.
C. Other property owned or
acquired
1. The basic characteristics of real
estate property acquired subject to
"Substandard " classification are as follows:
a. Acquired for less than five (5) years
unless worthless.
b. Converted into a Sales Contract
Receivable.
c. Sold subject to a firm purchase
commitment from a third party before the
close of the examination.
2. The basic characteristics of real
estate property acquired subject to "Loss"
classification are as follows:
a. Foreclosure expenses and other
charges included in the book value of the
property, excluding the amount of nonrefundable capital gains tax and
documentary stamp tax paid in connection
with the foreclosure/purchase which meet
the criteria for inclusion in the book value
of the acquired property.
b. The excess of the book value over
the appraised value.
c. Property whose title is definitely lost
to a third party or is being contested in court.
d. Property wherein the exercise of
the right of usufruct is not practicable or
possible as when it is eroded by a river or
is under any like circumstances.
Real estate property acquired are not
sound bank assets. Because of their nature,
that is, non-liquid and non-productive, their
immediate disposal through sale is highly
recommended.
D. Acquired or repossessed personal
property
1. All personal property owned or
acquired held for three (3) years or less from
APP. 18
08.12.31
date of acquisition shall be classified as

"Substandard " assets.
2. The basic characteristics of acquired
or repossessed personal property classified
as "Loss" are as follows:
a. Property not sold for more than
three (3) years from date of acquisition;
b. Property which is worthless or not
salable;
c. Property whose title is lost or is
being contested in court;
d. Foreclosure expenses and other
charges included in the book value of the
property; and
e. The excess of the book value of the
property over its appraised or realizable
value.
E. Accounts Receivable
1. Accounts receivable arising from
loan and investment accounts still
uncollected after six (6) months from the
date such loans or loan installments have
matured or have become past due shall be
provided with a 100% allowance for
uncollected accounts receivable.
2. All other accounts receivable
should be classified in accordance with age
as follows, unless there is good reason for
non-classification:
No. of Days
Outstanding
Classification
61 - 180
181 - 360
361 or more
Substandard
Doubtful
Loss
The classification according to age of

accounts receivable should be used in
classifying other risk assets not covered
above. However, their classification
should be tempered by favorable
information gathered in the review.
F. Accrued Interest Receivable
1. Accrued interest receivable on
loans or loan installments still uncollected
after three (3) months from the date such
loans or loan installments have matured or

have become non-performing shall be
provided with a 100% allowance for
uncollected interest on loans.
2. All other accrued interest
receivable on loans or loan installments
shall be classified similar to the
classification of their respective loan
accounts.
III. Allowance for probable losses
An allowance for probable losses on
the loan accounts shall be set up as follows:
A. Specific allowance
1.
2.
3.
4.
5.
Allowance
Classification
(Percent)
Unclassified
0.0
Loans Especially Mentioned 5.0
Substandard
(a) Secured
10.0
(b) Unsecured
25.0
Doubtful
50.0
Loss
100.0
B. General allowance. In addition to

the specific allowance for probable losses
required under Item "A", a general
provision for loan losses shall also be set
up as follows:
(1) Five percent (5%) of the
outstanding balance of unclassified
restructured loans less the outstanding
balance of restructured loans which are
considered non-risk under existing laws,
rules and regulations: Provided, That loans
restructured/rescheduled under the debt
relief and rehabilitation program for
borrowers adversely affected by the super
typhoon last 20 July 2003 in the Province
of Isabela shall be treated as regular loans
and shall be subject to the general loan loss
provision of one percent (1%) instead of
five percent (5%) applicable to restructured
loans: Provided, further, That the
restructuring/rescheduling of said loans are
effected not later than 31 December 2003:
APP. 18
08.12.31
Provided, finally, That the restructured/

rescheduled loans are subsequently
maintained in performing status or have
complied with the terms of the restructuring
agreement.
(2) One percent (1%) of the
outstanding balance of unclassified loans
other than restructured loans less loans
which are considered non-risk under
existing laws, rules and regulations.
The general loan loss provision shall
be computed as follows:
For Loans Not Restructured
Gross Loan Portfolio
(Excluding Restructured Loans)
P xxx
Less: Classified Loans
(based on latest BSP examination)
Loans especially mentioned P xxx
Substandard
Secured
xxx
Unsecured
xxx
Doubtful
xxx
Loss
xxx
xxx
Unclassified Loans
xxx
Less: Loans considered nonrisk under existing regulations
xxx
Loan Portfolio, net of exclusions
xxx
General Loan Loss Provision
(1% of net loan portfolio)
P xxx
For Restructured Loans

Restructured Loans (Gross)
P xxx
Less: Classified Restructured Loans
(based on latest BSP examination)
Loans especially mentioned P xxx
Substandard
Secured
xxx
Unsecured
xxx
Doubtful
xxx
Loss
xxx
xxx
Unclassified Restructured Loans
xxx
Less: Rest. Loans considered nonrisk under existing regulations
xxx
Restructured Loans, net of exclusions
xxx
General Loan Loss Provision
(5% of net restructured loans)
P xxx
The excess of the booked general loan

loss provisions over the amount required
as a result of the reduction of the amount
required to be set up to one percent (1%)

shall first be applied to unbooked specific
valuation reserves, whether authorized to be
booked on a staggered basis or not and only
the remainder can be considered as income.
C. Allowance for probable losses microfinance loans
Specific allowance for probable losses
on microfinance loans shall be set up
immediately in accordance with the PAR
number of days of missed payment, as follows:
No. of days of
Allowance for
missed payment
probable losses (%)
PAR 1 - 30
2
31 - 60 and/or loans
restructured
once
20
61 - 90
50
91 - or more and/or
loans restructured
twice
100
Provided, That a general provision for
losses for microfinance loans equivalent
to one percent (1%) of the outstanding
balance of microfinance loans not subject
to the foregoing provisioning less
microfinance loans which are considered
non-risk under existing laws/rules/
regulations, if any, shall also be set up.
The specific and general allowances
for probable losses shall be adjusted
accordingly for additional allowance
required by the BSP: Provided, That in
cases of partially secured loans, only ten
percent (10%) allowance shall be required
for the portion thereof which are covered
by the appraised value of the collateral:
Provided, further, That said collateral is
re-appraised at least annually.
Management is, however, encouraged
to provide additional allowance as it
deems prudent and to formulate additional
specific guidelines within the context of
the herein-described system.
603 dated 03 March 2008, 520 dated 20 March 2006)
APP. 19
05.12.31
FORMAT OF DISCLOSURE STATEMENT ON

LOAN/CREDIT TRANSACTION
_________________________________
(Business Name of Creditor)
DISCLOSURE STATEMENT ON LOAN/CREDIT TRANSACTION

(As Required under R.A. 3765, Truth in Lending Act)
NAME OF BORROWER __________________________________________________
ADDRESS ______________________________________________________________
1. LOAN GRANTED (Amount to be financed) .............................P___________
2. FINANCE CHARGES
(A)
Not Deducted
Deducted
From
From
Proceeds of Loan
a.
Interest_____% p.a. from ____to ____
( ) Monthly
( ) Quarterly
( ) Annual
( ) Semi-Annual
b. Non-Interest Charges
c. Commitment fee
d. Guarantee fee
e. Other charges incidental to the extension
of credit (Specify):
________________________________
________________________________
P ____________
P _________
(A)
( ) Simple
( ) Compound
Total finance charges

3. NON-FINANCE CHARGES
a. Insurance Premium
b. Taxes
c. Documentary/Science Stamps
d. Notarial Fees
e. Others (Specify)
_________________________
______________________
Total non-finance charges
_____________
_____________
_____________
__________
__________
__________
_____________
_____________
__________
__________
P _____________
P __________
_____________
P _____________
_____________
_____________
_____________
__________
P __________
__________
__________
__________
____________
__________
___________
_________
P ____________
(B)
P __________ (C)
APP. 19
05.12.31
4. TOTAL DEDUCTIONS FROM PROCEEDS OF LOAN (B plus C)
P ________ (D)
5. NET PROCEEDS OF LOAN (A less D) ...................................... P ________

6. PERCENTAGE OF FINANCE CHARGES TO TOTAL AMOUNT
FINANCED (Computed in accordance with
Subsec. X301.1 ...........................................................
___________%
7. EFFECTIVE INTEREST RATE ..........................................

(Method of computation attached)
8. SCHEDULE OF PAYMENT
a. Single payment due on _________
(Date)
__________% p.a.
P ___________
b. Total Installment Payments

Payable _________________ in months/year
(no. of payments)
at P ________ each installment.
P ___________
9. COLLATERAL
This loan is wholly/partly secured by (check)
real estate
chattels
government securities
UNSECURED
10. ADDITIONAL CHARGES IN CASE CERTAIN STIPULATIONS ARE NOT MET BY THE
BORROWER
Nature
Amount
____________________________
____________
____________________________
____________
____________________________
____________
CERTIFIED CORRECT:
_______________________________
(Signature of Creditor/Authorized
Representative Over Printed Name)
_______________________________
Position
I ACKNOWLEDGE RECEIPT OF A COPY OF THIS STATEMENT PRIOR TO THE CONSUMMATION OF THE CREDIT TRANSACTION AND THAT I UNDERSTAND AND FULLY AGREE TO
THE TERMS AND CONDITIONS THEREOF.
_______________________________
(Signature of Borrower over
Printed Name)
Date ______________
Notice to Borrower: You are entitled to a copy of this paper which you shall sign.
APP. 20
05.12.31
ABSTRACT OF "TRUTH IN LENDING ACT"

(Republic Act No. 3765)
(Appendix to Sec. X307.4)
Section 1. This Act shall be known as the

"Truth in Lending Act."
Sec. 2. Declaration of Policy. It is hereby
declared to be the policy of the State to
protect its citizens from a lack of awareness
of the true cost of credit to the user by
assuring a full disclosure of such cost with
a view of preventing the uninformed use of
credit to the detriment of the national
economy.
xxx
xxx
(4) the charges, individually itemized,

which are paid or to be paid by such person
in connection with the transaction but which
are not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms
of pesos and centavos; and
(7) the percentage that the finance
charge bears to the total amount to be
financed expressed as a simple annual rate
on the outstanding unpaid balance of the
obligation.
xxx
xxx
xxx
xxx
Sec. 3. As used in this Act, the term

xxx
xxx
xxx
(3) "Finance charge" includes interest,

fees, service charges, discounts, and such
other charges incident to the extension of
credit as the Board may by regulation
prescribe.
xxx
xxx
xxx
Sec. 4. Any creditor shall furnish to each

person to whom credit is extended, prior
to the consummation of the transaction, a
clear statement in writing stating forth, to the
extent applicable and in accordance with
rules and regulations prescribed by the
Board, the following information:
(1) the cash price or delivered price of
the property or service to be acquired;
(2) the amounts, if any, to be credited
as down payment and/or trade-in;
(3) the difference between the amounts
set forth under clauses (1) and (2);
Sec. 6. (a) Any creditor who in connection

with any credit transaction fails to disclose
to any person any information in violation
of this Act or any regulation issued
thereunder shall be liable to such person in
the amount of P100 or in an amount equal
to twice the finance charge required by such
creditor in connection with such
transaction, whichever is greater, except that
such liability shall not exceed P2,000 on any
credit transaction.
xxx
xxx
xxx
(c) Any person who willfully violates

any provision of this Act or any regulation
issued thereunder shall be fined by not less
than P1,000 nor more than P5,000 or
imprisonment for not less than 6 months,
nor more than one year or both.
xxx
xxx
xxx
(e) Any final judgment hereafter

rendered in any criminal proceeding
APP. 20
05.12.31
under this Act to the effect that a defendant

has wilfully violated this Act shall be
prima facie evidence against such
defendant in an action or proceeding
brought by any other party against such
defendant under this Act as to all matters
respecting which said judgment would be
an estoppel as between the parties

thereto.
Sec. 7. This Act shall become effective
upon approval.
Approved, 22 June 1963.
APP. 21
08.12.31
AGREEMENT FOR THE ENHANCED

INTERBANK CALL LOAN FUNDS TRANSFER SYSTEM
(As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/
RBAP/IHAP and MMAP)
APP. 21a
08.12.31
SETTLEMENT PROCEDURES FOR INTERBANK LOAN TRANSACTIONS AND

PURCHASE AND SALE OF GOVERNMENT SECURITIES
UNDER REPURCHASE AGREEMENTS WITH THE BANGKO SENTRAL
(As superseded by the agreement for PhilPaSS between the BSP and BAP/CTB/
RBAP/IHAP and MMAP)
APP. 21b
08.12.31
ENHANCED INTRADAY LIQUIDITY FACILITY

Given the increasing volume of

PhilPaSS transactions as well as concerns
of having temporary gridlocks in the
PhilPaSS, the current features of the ILF had
been enhanced, specifically on the
following areas:
a. Flexibility in changing the
securities that will be used for the ILF;
b. Availment of the facility on a as
the need arises basis; and
c. Removal of commitment fees
The revised features of the ILF are described
below.
A. Access to ILF
Government securities (GS) held by an
Eligible Participant bank in its Regular
Principal Securities Account that will be
used for ILF purposes shall be delivered to
a sub-account under the BSP-ILF Securities
Account with the Bureau of the Treasurys
(BTr) Registry of Scripless Securities (RoSS).
The delivered GS to be used for ILF
purposes shall be recorded by RoSS in a
sub-account (the Client Securities Account
(CSA)-ILF) under the BSP-ILF Securities
Account in the name of the Eligible
Participant/banks.
Banks without RoSS securities accounts
who intend/desire to avail of the ILF shall be
required to open/maintain a Securities
Account with the RoSS. The documentation
requirements for RoSS membership shall be
prescribed by the BTr.
Banks desiring to avail of the ILF shall
be further required to open a sub-account
under the BSP-ILF Securities Account with
the BTrs RoSS by accomplishing an
application letter addressed to the Treasurer
of the Philippines, Attn: The Director,
Liability Management Service and the
Chief, Scripless Securities Registration

Division. The application letter shall be in
the form of ANNEX 1 hereto.
B. Timeline
From 9:00AM to 9:30AM of each
banking day, an Eligible Participant bank
shall electronically instruct the BTr to move/
transfer from its Principal Securities Account
with the BTrs ROSS to the CSA-ILF under
the name of the Eligible Participant bank, the
pool of peso-denominated GS to be set aside
for the ILF purpose. The Eligible Participant
bank hereby confirms to the BTr that pursuant
to an ILF availment, it has authorized the
transfer without consideration unto the CSAILF the pool of GS to be used for ILF purposes.
From 9:30 AM to 10:00 AM, the BTr
RoSS shall electronically submit a
consolidated report to BSP showing the
details of the GS that were transferred to
the BSP-ILF Securities Account.
From 10:00 AM to 4:00PM, Eligible
Participant banks with insufficient balances
in its Demand Deposit Account No.2
(PhilPaSS Account) may avail of the ILF.
Eligible Participant banks may avail of
the ILF as necessary to fund pending
payment instructions. Thus, when the ILF
system detects queued transactions in the
PhilPaSS-Central Accounting System, the
Eligible Participant bank with insufficient
balance in its PhilPaSS Account will
automatically sell to the BSP-Treasury the
GS in the CSA-ILF pool corresponding to
the amount which may be needed to cover
any pending payment instruction, and the
proceeds of the sale of securities shall be
immediately credited to the banks
PhilPaSS Account. There may be more than
one availment during the day. Until a sale
to the BSP or an Overnight Repurchase
APP. 21b
08.12.31
(O/N-RP) transaction with the BSP is

executed, the beneficial ownership of the
GS that have been transferred to the CSAILF still belongs to the banks.
At 5:00PM, the BSP shall sell back to
the Eligible Participant bank the GS at the
same price as the original BSP purchase.
Partial repayment of a particular availment
will not be allowed.
In case the PhilPaSS Account balance
of the participating bank is not sufficient to
cover the afternoon repayment transaction,
the BSP and the participating bank may
agree on the following:
a. BSP shall extend to the Eligible
participant bank an O/N-RP at 600 basis points
over the BSPs regular overnight lending rate
for the day. The O/N-RP shall be paid not
later than 11:00AM on maturity date. Unpaid
O/N-RP shall be automatically converted into
an absolute sale to the BSP of the subject
GS earlier delivered/transferred to the
CSA-ILF, pursuant to an ILF availment by
the Eligible Participant bank, in which case,
BSP shall issue an instruction to BTr to
deliver/transfer the subject GS from the
BSP-ILF Securities Account to the BSP
regular Principal Securities Account. The
sale shall be evidenced by the issue of
Confirmation of Sale by the Eligible
Participant bank (Annex 2) and the
Confirmation of Purchase by the BSP
Treasury Department (Annex 3), or,
b. Only in extreme cases, the BSP
shall sell back to the participating bank GS
up to the extent of the PhilPaSS Account
balance. The BSP shall issue an instruction
to the BTr to transfer the remaining GS
amounting to the unpaid ILF availment
from the BSP-ILF Securities Account to the
BSPs Regular Principal Securities Account.
At the end of the day and after BSPs
sell-back of the GS to ILF participants,
normally by 5:45PM, the BSP Treasury

Department shall electronically instruct
RoSS, using the ILF RoSS system
developed for herein purpose, to return/
deliver from the CSA-ILF of the
participating banks to their respective
Regular Principal Securities Accounts with
the RoSS all unused/unencumbered GS.
GS used for O/N-RP shall remain in the
CSA-ILF until repayment of subject O/NRP or conversion to outright sale the
following day.
Upon receipt of BSPs electronic
instruction for the return of GS back to the
participating banks regular Principal
Securities Accounts, the BTr shall update
their database after which participating
banks may request/download statements
of securities accounts for their verification.
C. Eligible Securities
Peso-denominated scripless securities
of the National Government that are free
and unencumbered and with remaining
maturity of eleven (11) days to ten (10) years
shall be eligible for the ILF. GS that will be
used for ILF purposes would be reclassified
with due consideration to the original
booking of the security, as follows:
Original Booking of GS
To be reclassified to
a. Held for Trading
Held for Trading ILF
b. Designated Fair Value
Designated Fair Value
Through Profit or Loss
Through Profit or Loss - ILF
c. Available for Sale
Available for Sale - ILF
d. Held to Maturity
Held to Maturity - ILF
D. Valuation of Securities
The GS subject of an ILF transaction
shall be valued based on the 11:16AM
fixing rates of the previous business day,
from the applicable Reuters PDEX pages
Manual of Regulations for Non-Bank Financial Institutions
APP. 21b
08.12.31
or any other valuation benchmark as may

be prescribed by the BSP.
banks of any change in fee at least fifteen

(15) days prior to implementation.
E. Margins
Margins shall be applied based on
prevailing policies of the BSP Treasury
Department.
G. DDA Statements/Transaction Details

Eligible Participating banks will be able
to verify the status of their accounts by
initiating the SWIFT/PPS-Front-end System
inquiry request.
F. Transaction Fee
The BTr shall collect a monthly
maintenance fee of One Thousand Pesos
(P1,000.00) from each Eligible Participant
bank for the use of the CSA-ILF Securities
Account. The maintenance fees herein
required to be paid by each Eligible
Participant bank shall be separate from and
exclusive of any other fees being assessed
and collected by BTr for membership in
the RoSS. For this purpose, the Eligible
Participant bank shall issue to the BTr an
autodebit instruction to authorize the BTr
to debit its DDA with BSP for the abovementioned monthly maintenance fee. The
BTr will inform the Eligible Participant
AVAILABILITY OF SERVICE
The ILF is covered by a Memorandum
of Agreement (MOA) dated 25 March 2008
by and among the BSP, the BTr, the
Bankers Association of the Philippines (for
BAP members) and the Money Market
Association of the Philippines (for non-BAP
members). Participating banks shall sign
individual participation agreements. The
services outlined in the MOA shall be
available at the BSP and the BTr at a fixed
hour on all banking days. Banking days
refer to the days banking institutions are
open for business Mondays thru Fridays as
authorized by the BSP.
APP. 21b
08.12.31
PARTICIPATION AGREEMENT
__________________
Date
A. Mabini corner P. Ocampo Sr. Streets,
Manila
Bureau of the Treasury
Palacio del Gobernador
Intramuros, Manila
Bankers Association of the Philippines
11th Floor, Sagittarius Building
H. V. dela Costa Street, Salcedo Village
Makati City
Money Market Association of the Philippines
Penthouse, PDCP Bank Center
Herrera corner L. P. Leviste Streets, Salcedo Village
Makati City
Gentlemen:
Please be advised that we agree to participate in the Agreement for the Establishment of Intraday Liquidity
Facility to support the Philippine Payment and Settlement System (the System) which is covered by
the Memorandum of Agreement dated _____ (the Agreement) among yourselves and its subsequent
amendments of revisions as may be agreed upon by the parties thereto from time to time.
We agree to be bound by all the terms and conditions of the Agreement and adopt it as an integral part
of this Participation Agreement, including the authority of the BSP to execute payment instructions
and the authority of the Bureau of the Treasury (BTr) to execute our instructions on transfer to/from,
credit and debit to/against our Securities Account. Further, we agree to comply with all our obligations
as participating bank/financial institution as provided in the Agreement. Lastly, we agree to keep
yourselves free and harmless from any claim or liability arising from, or in connection with, our
transactions transmitted through the System in accordance with the provisions of the Agreement.
This participation will become effective upon your conformity hereto and your notification of the
same to us, the BSP and the BTr.
Very truly yours,
________________________________
Participating Bank/Financial Institutions
APPROVED:
By:
By: ________________
Bankers Association of the Philippines
By: ________________
Money Market Association of the Philippines
By: ________________
APP. 21b
08.12.31
Annex 1
(LETTERHEAD OF THE APPLICANT)
The Treasurer of the Philippines
Intramuros, Manila
Sir:
The undersigned hereby makes an application to open a Client Securities Account
under the BSP-ILF RoSS Account in the Registry of Scripless Securities (RoSS) operated and
maintained by the Bureau of the Treasury (BTr).
The undersigned will pay to BTr an additional monthly fee of P1,000.00 for the
Client Securities Account opened payable on the first business day of each month. The BTr
will inform the undersigned of any change in fee at least fifteen (15) days prior to
implementation.
Please debit/credit our Regular Demand Deposit Account No. ______ with the
BSP for the payment of said monthly fee.
_______________ Manila, Philippines
(Date)
(Name of Applicant)
(Signature of Authorized Signatory)
(Designation)
APP. 21b
08.12.31
Annex 2
LETTERHEAD OF THE SELLER
Transaction No. ________
Value Date
________
CONFIRMATION OF SALE OF GOVERNMENT SECURITIES

The _______________, does hereby CONFIRM that it has SOLD, TRANSFERRED
AND CONVEYED unto _______________, pursuant to the Memorandum of Agreement
for Intraday Liquidity Facility and the Participation Agreement executed on ______ and
______, respectively, all of its rights, titles and interests over the following described
Government Securities, held by the Bureau of the Treasury under the Registry of Scripless
Securities System.
ISIN
TERM
(Code)
ISSUE
DATE
MATURITY
DATE
FACE
AMOUNT
(Account Number)
(Name of GSED)
(Designation)
APP. 21b
08.12.31
Annex 3
Transaction No.
Value Date
________
________
CONFIRMATION OF PURCHASE OF GOVERNMENT SECURITIES
The _____________, does hereby CONFIRM that it has PURCHASED from

______________, pursuant to the Memorandum of Agreement for Intraday Liquidity Facility
and the Participation Agreement executed on ______ and ______, respectively, all of its
rights, titles and interests over the following described Government Securities, held by
the Bureau of the Treasury under its Registry of Scripless Securities System.
ISIN
(Code)
TERM
ISSUE
DATE
MATURITY
DATE
FACE
AMOUNT
(Account Number)
(Name of GSED)
(Designation)
APP. 22
05.12.31
LIST OF NON-ALLIED UNDERTAKING

WHERE UBs MAY INVEST IN EQUITIES1
PSIC
CODE
MAJOR GROUP
DESCRIPTION
GROUP
I.
Agriculture (Major Division 1)

A. Agricultural crops production (Division 11)
111
112
113
114
115
116
Palay production
Corn production
Vegetable production, including root and tuber crops
Fruits and nuts (excluding coconut) production
Coconut production, including copra making in the farm
Sugarcane production, including muscovado sugar in
the farm
Fiber crops production
Other agricultural crops production
118
119
B. Production of livestock, poultry and other animals

(Division 12)
121
122
123
Livestock and livestock products

Poultry and poultry products
Raising of other animals, including their products
C. Agricultural services (Division 13)
130
Agricultural services
II. Fishery and Forestry (Major Division 2)
A. Fishery (Division 14)
141
142
143
149
Ocean (offshore) and coastal fishing

Inland fishing
Operation of fish farms
Other fishery activities
For purposes of identifying the classification of a certain enterprise or undertaking, the industrial groupings in the
1977 Philippine Standard Industrial Classification (PSIC) list shall be followed.
APP. 22
05.12.31
PSIC
CODE
MAJOR GROUP
DESCRIPTION
GROUP
B. Forestry (Division 15)
159
Other forestry activities (operation of forest tree

nurseries; planting, replanting and conservation of
forests; gathering of uncultivated forest materials;
establishments primarily engaged in providing forestry
services on a fee or contract basis)
III. Mining and Quarrying (Major Division 3)
A. Metallic ore mining (Division 21)
211
212
213
214
215
216
217
Gold ore mining

Other precious metal ore mining
Copper ore mining
Nickel ore mining
Chromite ore mining
Iron ore mining
Other base metal ore mining
B. Non-metallic mining and quarrying (Division 22)
221
222
223
229
Coal mining
Exploration and production of crude petroleum and
natural gas
Stone quarrying, clay and sand pits
Other non-metallic mining and quarrying
IV. Manufacturing (Major Division 4)
A. Manufacture of food (Division 31)
311-312
Food manufacturing
B. Textile, wearing apparel and leather industries
(Division 32)
321
322
324
Manufacture of textiles
Manufacture of wearing apparel, except footwear
Manufacture of leather and leather products, leather
substitutes, and fur, except footwear & wearing apparel
Manufacture of footwear, except rubber, plastic or wood
footwear
APP. 22
05.12.31
PSIC
CODE
MAJOR GROUP
DESCRIPTION
GROUP
C. Manufacture of paper and paper products; printing and
publishing (Division 34)
341
342
Manufacture of paper and paper products

Printing, publishing and allied industries
D. Manufacture of chemicals and chemical, petroleum, coal
rubber and plastic products (Division 35)
351
352
353
354
355
356
Manufacture of industrial chemicals

Manufacture of other chemical products
Petroleum refineries
Manufacture of miscellaneous products of petroleum and coal
Manufacture of rubber products
Manufacture of plastic products not elsewhere classified
E. Manufacture of non-metallic mineral products, except
products of petroleum and coal (Division 36)
361
362
363
369
Manufacture of pottery, china and earthenware

Manufacture of glass and glass products
Manufacture of cement
Manufacture of other non-metallic mineral products
F. Basic metal industries (Division 37)
371
372
Iron and steel basic industries

Non-ferrous metal basic industries
G. Manufacture of fabricated metal products, machinery and
equipment (Division 38)
381
382
383
384
385
386
Manufacture of fabricated metal products, except

machinery and equipment and furniture and fixtures
primarily of metal
Manufacture of machinery except electrical
Manufacture of electrical machinery apparatus,
appliances and supplies
Manufacture of transport equipment
Manufacture of professional and scientific and measuring
and controlling equipment not elsewhere classified, and of
photographic and optical instruments
Manufacture and repair of furniture and fixtures primarily
of metal
APP. 22
05.12.31
PSIC
CODE
MAJOR GROUP
DESCRIPTION
GROUP
H. Other manufacturing industries (Division 39)
390
Other manufacturing industries

V. Electricity, Gas and Water (Major Division 5)
A. Electricity (Division 41)
411
412
Generating and distributing electicity

Distributing electricity to consumers
B. Gas and steam (Division 42)
421
422
Gas manufacture and distribution through systems

Steam heat and power plants
C. Waterworks and supply (Division 43)
430
Waterworks and supply

VI. Construction (Major Division 6)
501
502
503
General building construction

General engineering construction
Special trade construction
VII. Wholesale Trade and Retail Trade Repair of MV
Motorcycles and Personal and Household Goods (Major
Division 7)
A. Wholesale trade (Division 61)
619
Wholesale trade not elsewhere classified

Merchandise brokers, general merchants, importers and
exporters
VIII. Transport, Storage and Communication (Major Division 8)
A. Transportation services (Division 71)

711
712
713
Railway transport
Road passenger and freight transport
Water transport
APP. 22
05.12.31
PSIC
CODE
MAJOR GROUP
DESCRIPTION
GROUP
714
719
Air transport
Services allied to transport
B. Communication (Division 73)
731
732
733
739
Mail and express services

Telephone services
Telegraph services
Communication services, non-essential commodities
IX. Financial Intermediation (Major Division 9)
X.
Real Estate, Renting and Business Activities (Major

Division 10)
XI. Public Ad and Defense; Compulsory Social Security

(Major Division 11)
XII. Education (Major Division 12)
XIII. Health and Social Work (Major Division 13)
XIV. Other Community, Social, and Personal Service Activities
(Major Division 14)
A. Other social and related community services (Division 95)
951
Research and scientific institutions

XV. Private Households with Employed Persons
(Major Division 15)
XVI. Extra- Territorial Organizations and Bodies
(Major Division 16)
XVII. Restaurant and Hotels (Major Division 17)
981
982
Restaurants, cafes and other eating and drinking places

Hotel, motels and other lodging places, non-essential
commodities
APP. 23
05.12.31
CREDIT PRIORITY CLASSIFICATION

Priority I -
Priority II
a. Production of agricultural,
including forestry and fishery, and
industrial goods which (1) possess growth
potential in competitive domestic and
world markets, (2) contribute most to the
development of the economy, (3) provide
for the satisfaction of basic wants of the
population as a whole, and (4) require
resources in addition to their selffinancing capabilities.
b. Marketing export products,
primarily those goods that contain the
maximum possible domestic processing and
labor content.
c. Marketing in the international
market of domestic products which fall under
Priority I and imported basic consumer goods
by Filipino merchandisers.
d. Importation and marketing of capital
equipment, raw materials and supplies for
the production and distribution of Priority I
products.
e. Public utilities which are not
overcrowded and are necessary to support
the production and distribution of Priority I
goods or to satisfy basic wants.
f. Other services which are not
overcrowded and which are necessary for
(1) the development of desirable knowledge
and skills, (2) the support of the production
and distribution of Priority I products, and
(3) the promotion of tourism and cultural
pursuits.
g. Construction of (1) infrastructure
projects, (2) physical plants necessary for the
production and distribution of Priority I
products and services, and (3) individual
low cost housing for the lower income
groups of the population.
a. Production and distribution of

goods and services which do not qualify
under the Priority I category.
b. Real estate loans (construction,
acquisition, development and refinancing of
real estate) other than those specified under
Priority I.
c. Consumption.
d. Other non-productive and
speculative activities.
ECONOMIC ACTIVITIES FALLING

UNDER PRIORITY I
A. Economic activities eligible for credits
up to eighty percent (80%) of loan value of
credit instrument
1. Agriculture, Fisheries and Forestry
a. Agricultural
(1) Abaca
(2) Cassava
(3) Cattle and dairy farms
(4) Coconut
(5) Coffee and cocoa
(6) Corn
(7) Palay or rice
(8) Piggery
(9) Poultry
(10) Ramie
(11) Rubber plantation
(12) Other fruits and vegetables
b. Fisheries
(1) Fishponds and inland fishing
(2) Marine fishing
c. Forestry
(1) Forest nurseries and reforestation
project
APP. 23
05.12.31
2. Mining and quarrying

a. Metal mining
(1) Chromite
(2) Copper
(3) Iron
(4) Lead
(5) Manganese
(6) Mercury and quicksilver
(7) Nickel
(8) Zinc
(a) Fish canning

(2) Canning and preserving of
fruits and vegetables
(a) Canning, drying, brining,
pickling or otherwise
preserving or preparing
vegetables
(b) Canning,
drying
or
otherwise preparing and
preserving fruits
(3) Slaughtering, preparation
and preserving of meat
(4) Miscellaneous
food
preparation
(a) Prepared feeds for animals
and fowls
b. Non-mettalic mining
(1) Asbestos
(2) Sulphur
(3) Coal
(4) Gypsum
3. Manufacturing
a. Basic metal industries
(1) Blast furnaces, steel works
and rolling mills
(2) Iron and steel basic
industries
(3) Iron and steel foundries
(4) Non-ferrous metal basic
industries
f.
g. Leather and leather products

(1) Tanning and finishing
h. Lumber and wood products
(1) Veneer, plywood and
prefabricated products
i.
Machinery,
equipment,
accessories and parts
(1) Agricultural machinery
(2) Engines and turbines
(3) Industrial, construction
and mining machinery
j.
Non-metallic products
(1) Cement
b. Chemical and chemical products

(1) Basic chemicals
(2) Drugs
(3) Fertilizer
c. Coconut products and their
preparation
(1) Coconut oil, edible
(2) Coconut oil, inedible
(3) Copra meal and cake
d.
Electrical machinery,
apparatus and appliances
(1) Transmissions and
distribution equipment
e. Food manufacturing
fish and other sea foods
Furniture and fixtures manufacture

(1) Rattan and bamboo furniture
k. Paper and paper products

(1) Pulp, paper and paperboard
I.
Petroleum and coal products

(1) Coke
m. Textile, cordage and twines

manufactures
(1) Cordage, rope, twines and
nets
APP. 23
05.12.31
(2) Hemp milling, abaca

stripping and baling
establishments
(3) Knitting mills
(4) Spinning, weaving and
finishing of textiles
n. Transportation equipment and
parts
(1) Aircrafts and parts
(2) Motor vehicles, equipment
and parts
(3) Motorcycles, bicycles and
parts
(4) Railroad equipment
(5) Ships and boats
o. Miscellaneous manufacturing
industries
(1) Laboratory, engineering and
medical
4. Construction
a. Contract
(1) Building construction
(a) Commercial and industrial
projects*
5. Public Utilities
a. Ice and ice refrigeration plants
b. Operation of wharves, dry
docks etc.
c. Warehousing
d. Water supply and sanitary
services
(1) Irrigation systems
(2) Water supply systems
6. Commerce
a. Export products*
b. Importation of capital goods and
raw materials*
c. Domestic trade (Filipino only)
wholesales and retail
B. Economic activities eligible for credits

up to sixty percent (60%) of the loan value
of the credit instrument **
1. Agriculture, fisheries and forestry
a. Agricultural
(1) Citrus
(2) Cotton
(3) Salt farming
(4) Soybean
(5) Other root crops
a. Metal mining
(1) Gold
(2) Silver
b. Non-metallic mining
(1) Asphalt
(2) Marble
3. Manufacturing
a. Chemical and chemical products
(1) Dyeing and tanning
materials
(2) E x p l o s i v e s ( e x c l u d i n g
firecrackers)
b. Coconut products and their
preparations
(1) Dessicated coconut
c. Electrical machinery, apparatus
and appliances
(1) Communication equipment
(2) Dry cells and storage
batteries
d. Food manufacturing
fruits and vegetables
(a) Fruits and vegetables,
sauces and seasoning
(2) Dairy products
(a) Milk processing
(3) Miscellaneous
food
* To follow rating of aconomic activities included in the list.

** For updated loans values, see Subsec X269.5
APP. 23
05.12.31
preparations
(a) Coffee roasting, grinding
and/or processing
e. Furniture and fixture manufacture
(1) Wood furniture
f.
Lumber and wood products

(1) Cork
(2) Sashes and doors
(3) Sawn and planed lumber
(4) Wooden box
(5) Wood chips
g. Machinery,
equipment,
accessories and parts
(1) Office and store machines
and devices
h. Metal industries
(1) Cutlery, handtools and
general
products
(2) Fabricated structural and
metal products
(3) Tin and aluminum ware
i.
Non-metallic products
(1) Glass and glass products
(2) Structural clay products
j.
Textile, cordage and twines

manufactures
(1) Jute bags and sacks
k. Miscellaneous manufacturing
industries
(1) Cottage native handicraft
industries
(2) Footwear (other than rubber)
(3) Photographic and optical
goods
4. Construction
a. Contract
(a) Commercial and industrial
projects*
(2) Highway and street
construction (including road
building)
5. Public utilities
a. Common carriers
(1) Airlines and other air
transportation
(2) Motor vehicles
(3) Railroad and railway
companies
(4) Steamboats and steamship
lines
b. Communication
(1) Telecommunication (cable,
mail and express, telegraph,
telephone)
c. Electricity, gas and steam
(1) Electric, light, heat and
power
d. Water supply and sanitary
services
(1) Garbage, sewerage and
disposal system
6. Services
a. Business and professional
services
(1) Engineering and technical
services
b. Educational services
(1) Private vocational and trade
schools
(2) Public universities and higher
educational institutions
(3) Public vocational and trade
schools
c. Medical and other health services
(1) Public health services
* To follow rating of economic activities included in the list.
APP. 23
05.12.31
d.
Recreation services
(1) Theatrical production (i.e., all
performing arts)
e. Research and scientific
institutions
7. Financial
a. Banks
(1) Private development banks
(2) Rural banks/Cooperative
banks
8. Commerce
a. Export products*
b. Importation of capital goods and
raw materials*
wholesale and retail*
9. Other activities
a. Loans for other dollar-earning
purposes not elsewhere classified
(included in this category are the
construction, development and
operations of first-class hotels
which cater to the needs of the
tourist industry).
C. Economic activities eligible for credits
of the credit instrument**
a. Agricultural
(1) Pineapple
(2) Tobacco, native
b. Fisheries
(1) Fishery services
(2) Pearl fishing and culture,
shell gathering and other
marine products
c. Forestry
(1) Forest services
(2) Timber tracts

a. Non-metallic mining
(1) Mineral salt
(2) Silica
3. Manufacturing
a. Apparel and other finished
products made from fabrics and
similar materials
(1) Embroidery shops
(2) Wearing apparel
b. Chemicals and chemical
products
(1) Paints, varnishes and lacquers
(2) Soaps and other cleansing
preparations
preparations
(1) Copra
d. Electrical machinery, apparatus
and appliances
(1) Electric lamp
(2) Household appliances
(3) Radio, television, telephone
receiving sets, electronic
tubes and components
(a) Fish
sauce
(patis)
manufacture
(b) Shellfish curing, smoking,
salting or pickling
(2) Cocoa and chocolate and
sugar confectionery
(a) Cocoa and chocolate
processing factories
(3) Grain mill products
(a) Corn mills
(b) Rice mills
(c) Tuber flour mills

** For updated loan values, please see Subsec. X269.
APP. 23
05.12.31
(d) Wheat flour

(4) Miscellaneous food
preparations
(a) Salt manufacture
(b) Starch and its products
(c) Vegetable
lard
and
margarine manufacture
(d) Vermicelli and noodles
manufacture
f.
Lumber and wood products

(1) Creosoting and other wood
treating
g. Metal industries
(1) Fabricated wire products
(2) Metal stamping, coating and
engraving
h. Non-metallic products
(1) Private vocational and trade
schools
(2) Public universities and higher
educational institutions
(3) Public vocational and trade
schools
c. Medical and other health
services
(1) Public health services
d. Recreation services
(1) Theatrical production (i.e.,
all performing arts)
e. Research
institutions
and
scientific
7. Financial
a. Banks
(1) Private development banks
(2) Rural banks/Cooperative
banks
8. Commerce
a. Export products*
b. Importation of capital goods

and raw materials*
whosale and retail*
9. Other activities
a. Loans for other dollar-earning
purposes not elsewhere
classified (included in this
category are the construction,
development and operations of
first-class hotels which cater to
the needs of the tourist industry).
C. Economic activities eligible for credits
of the credit instrument**
a. Agricultural
(1) Pineapple
(2) Tobacco, native
b. Fisheries
(1) Fishery services
(2) Pearl fishing and culture,
shell gathering and other
marine products
c. Forestry
(1) Forest services
(2) Timber tracts
a. Non-metallic mining
(1) Mineral salt
(2) Silica
3. Manufacturing
a. Apparel and other finished
products made from fabrics and
similar materials
(1) Embroidery shops

** For updated loans values, please see Subsec X269
APP. 23
05.12.31
(2) Wearing apparel

b. Chemicals and chemical
products
(1) Paints, varnishes and
lacquers
(2) Soaps and other cleansing
preparations
preparation
(1) Copra
d. Electrical machinery, apparatus
and appliances
(1) Electric lamp
(2) Household appliances
(3) Radio, television, telephone
receiving sets, electronic
tubes and components
(a) Fish
sauce
(patis)
manufacture
(b) Shellfish curing, smoking,
salting or picking
(2) Cocoa and chocolate and
sugar confectionary
(a) Cocoa and chocolate
processing factories
(3) Grain mill products
(a) Corn mills
(b) Rice mills
(c) Tuber flour mills
(d) Wheat flour
(4) Miscellaneous food
preparations
(a) Salt manufacture
(b) Starch and its products
(c) Vegetable
lard
and
margarine manufacture
(d) Vermicelli and noodles
manufacture
f. Lumber and wood products
(1) Creosoting and other wood
treating
g. Metal industries
(1) Fabricated wire products
(2) Metal stamping, coating and
engraving
h. Non-metallic products
(1) Plastic products
(2) Pottery, china, earthenware
(3) Concrete aggregates
(4) Concrete products
(a) Cement products light
weight aggregate
(b) Pre-mold concrete light
aggregate
i.
Paper and paper products

(1) Coated and glazed paper
products
j.
Printing, publishing and allied

industries
(1) Book publishing and
printing
(2) Newspaper and periodical
publishing
k. Tobacco
(1) Cigar and cigarette factories
(native)
I.
Miscellaneous manufacturing
industries
(1) Oxygen, acetylene and
similar products
(2) Silver and gold work
without precious stones
(3) Musical instruments and parts
(a) Blank recording discs
(b) Metal stampers
4. Construction
a. Contract
(a) Government projects
(b) Commercial and industrial
projects*
(2) Heavy
construction
(including bridges and
irrigation projects)
APP. 23
05.12.31
b. Personal
(1) Construction
(2) Reconstruction
5. Public utilities
a. Electricity, gas and steam
(1) G a s m a n u f a c t u r e a n d
distribution
(2) Steam heat and power
b. Water supply and sanitary
services
(1) Drainage system
6. Services
a. Medical and other health services
(1) Private health services
b. Recreation services
(1) Motion picture production
7. Financial
a. Banks
(1) Commercial banks
(2) Savings and mortgage banks
8. Commerce
a. Export products*
b. Importation of capital goods
and raw materials*
whosale and retail*
APP. 24
05.12.31
SAMPLE INVESTMENT MANAGEMENT AGREEMENT

IMA No. (prenumbered)

INVESTMENT MANAGEMENT AGREEMENT
This AGREEMENT, made and executed this ____ day of ___________ at __________,
Philippines, by and between:
_____________________________________
(Hereinafter referred to as the PRINCIPAL)
and
_________________________, a banking corporation authorized to
perform trust functions, organized and existing under and by virtue
of the laws of the Philippines, with principal office and place of
business at _________________, ________________________,
Philippines.
(Hereinafter referred to as the INVESTMENT MANAGER)
WITNESSETH: THAT WHEREAS, the Principal desires to avail of the services of the Investment Manager
relative to the management and investment of Principals investible funds;
WHEREAS, the Investment Manager is willing to render the services required by the
Principal relative to the management and investment of Principals investible funds, subject
to the terms and conditions hereinafter stipulated;
NOW, THEREFORE, for and in consideration of the foregoing and of the mutual
conditions stipulated hereunder, the parties hereto hereby agree and bind themselves to the
following terms and conditions:
INVESTMENT PORTFOLIO
1.
Delivery of the Fund - Upon execution of this Agreement, the Principal shall
deliver to the Investment Manager the amount of PHILIPPINE PESOS:
_____________________________________________ (P_____________).
APP. 24
05.12.31
2.
Composition - The cash which the Principal has delivered to the Investment
Manager as well as such securities in which said sums are invested, the proceeds, interest,
dividends and income or profits realized from the management, investment and reinvestment
thereof, shall constitute the managed funds and shall hereafter be designated and referred to
as the Portfolio. For purposes of this Agreement, the term securities shall be deemed to
include commercial papers, shares of stock and other financial instruments.
3.
Delivery of Additional Funds - At any time hereafter and from time to time at
the discretion of the Principal, the latter may deliver additional funds to the Investment
Manager who shall form part of the Portfolio and shall be subject to the same terms and
conditions of this Agreement. No formalities other than a letter from the principal and physical
delivery to the Investment Manager of cash will be required for any addition to the Portfolio.
4.
Nature of Agreement - THIS AGREEMENT IS AN AGENCY AND NOT A
TRUST AGREEMENT. AS SUCH, THE CLIENT SHALL AT ALL TIMES RETAIN LEGAL TITLE
TO FUNDS AND PROPERTIES SUBJECT OF THIS ARRANGEMENT.
THIS AGREEMENT IS FOR FINANCIAL RETURN AND FOR THE APPRECIATION
OF ASSETS OF THE ACCOUNT. THIS AGREEMENT DOES NOT GUARANTEE A YIELD,
RETURN OR INCOME BY THE INVESTMENT MANAGER. AS SUCH, PAST PERFORMANCE
OF THE ACCOUNT IS NOT A GUARANTY OF FUTURE PERFORMANCE AND THE
INCOME OF INVESTMENTS CAN FALL AS WELL AS RISE DEPENDING ON PREVAILING
MARKET CONDITIONS.
IT IS UNDERSTOOD THAT THIS INVESTMENT MANAGEMENT AGREEMENT IS
NOT COVERED BY THE PHILIPPINE DEPOSIT INSURANCE CORPORATION (PDIC) AND
THAT LOSSES, IF ANY, SHALL BE FOR THE ACCOUNT OF THE PRINCIPAL.
POWERS
5.
Powers of the Investment Manager - The Investment Manager is hereby
conferred the following powers:
a.
To invest or reinvest the Portfolio in (1) Evidences of indebtedness of the

Republic of the Philippines and of the Bangko Sentral ng Pilipinas, and any
other evidences of indebtedness or obligations the servicing and repayment
of which are fully guaranteed by the Republic of the Philippines or loans
against such government securities; (2) Loans fully guaranteed by the
government as to the payment of principal and interest; (3) Loans fully secured
by hold-out on, assignment or pledge of deposits or of deposit substitutes, or
mortgage and chattel mortgage bonds; (4) Loans fully secured by real estate
and chattels in accordance with Section 78 of R.A. No. 337, as amended, and
subject to the requirements of Sections 75, 76 and 77 of R.A. No. 337, as
amended; and (5) Such other investments or loans as may be directed or
authorized by the Principal in a separate written instrument which shall form
APP. 24
05.12.31
part of this Agreement: Provided, That said written instrument shall contain
the following minimum information: (a) The transaction to be entered into;
(b) The amount involved; and (c) The name of the issuer, in case of securities
and/or the name of the borrower and nature of security, in the case of loans;
b.
To endorse, sign or execute any and all securities, documents or contracts

necessary for or connected with the exercise of the powers hereby conferred
or the performance of the acts hereby authorized;
c.
To cause any property of the Portfolio to be issued, held, or registered in the

name of the Principal or of the Investment Manager: Provided, That in case
of the latter, the instrument shall indicate that the Investment Manager is
acting in a representative capacity and that the Principals name is disclosed
thereat;
d.
To open and maintain savings and/or checking accounts as may be considered

necessary from time to time in the performance of the agency and the authority
herein conferred upon the Investment Manager;
e.
To collect and receive matured securities, dividends, profits, interest and all
other sums accruing to or due to the Portfolio;
f.
To pay such taxes as may be due in respect of or on account of the Portfolio or

in respect of any profit, income or gains derived from the sale or disposition
of securities or other properties constituting part of the Portfolio;
g.
To pay out of the Portfolio all costs, charges and expenses incurred in
connection with the investments or the administration and management of
the Portfolio including the compensation of the Investment Manager for its
services relative to the Portfolio; and
h.
To perform such other acts or make, execute and deliver all instruments
necessary or proper for the exercise of any of the powers conferred herein, or
to accomplish any of the purposes hereof.
LIABILITY OF INVESTMENT MANAGER
6.
Exemption from Liability - In the absence of fraud, bad faith, or gross or
willful negligence on the part of the Investment Manager or any person acting in its behalf,
the Investment Manager shall not be liable for any loss or damage to the Portfolio arising out
of or in connection with any act done or performed or caused to be done or performed by
the Investment Manager pursuant to the terms and conditions herein agreed, to carry out the
powers, duties and purposes for which this Agreement is executed.
Advice of Counsel - The Investment Manager may seek the advice of lawyers.
7.
Any action taken or suffered in good faith by the Investment Manager as a consequence of
APP. 24
05.12.31
the opinion of the said lawyers shall be conclusive and binding upon the Principal, and the
Investment Manager shall be fully protected from any liability suffered or caused to be
suffered by the Principal by virtue hereof.
ACCOUNTING AND REPORTING
8.
The Investment Manager shall keep and maintain books of accounts and
other accounting records as required by law. The Principal or the authorized representative
of the Principal shall have access to and may inspect such books of accounts and all other
records related to the Portfolio, including the securities held in custody by the Investment
Manager for the Portfolio.
9.
Reporting Requirements - The Investment Manager shall prepare and submit
to the Principal the following reports within ______________________________: (a) Balance
Sheet; (b) Income Statement; (c) Schedule of Earning Assets; (d) Investment Activity Report;
and (e) (such other reports as may be required by the Principal).
INVESTMENT MANAGERS FEE
10.
Investment Fee - The Investment Manager, in addition to the reimbursement
of its expenses and disbursements in the administration and management of the Portfolio
including counsel fees, shall be entitled to receive as compensation for its services a
management fee of
(Specify amount or rate)
.
WITHDRAWALS FROM THE PORTFOLIO
11.
Withdrawal of Income/Principal - Subject to availability of funds and the
non-diminution of the Portfolio below P1 million, the Principal may withdraw the income/
principal of the Portfolio or portion thereof upon written instruction or order given to the
Investment Manager. The Investment Manager shall not be required to see as to the
application of the income/principal so withdrawn from the Portfolio. Any income of the
Portfolio not withdrawn shall be accumulated and added to the principal of the Portfolio for
further investment and reinvestment.
Non-alienation of Encumbrance of the Portfolio or Income - During the
12.
effectivity of this Agreement, the Principal shall not assign or encumber the Portfolio or its
income or any portion thereof in any manner whatsoever to any person without the prior
written consent of the Investment Manager.
APP. 24
05.12.31
EFFECTIVITY AND TERMINATION

13.
Term - This Agreement shall take effect from the date of signing hereof and
shall be in full force and effect until terminated by either party by giving written notice
thereof to the other at least _______(__) days prior to the termination date.
14.
Powers upon Liquidation - The powers, duties and discretion conferred upon
the Investment Manager by virtue of this Agreement shall continue for the purpose of
liquidation and return of the Portfolio, after the notice of termination of this Agreement has
been served in writing, until final delivery of the Portfolio to the Principal.
15.
Accounting of Transaction - Within _____ (__) days after the termination of
this Agreement, the Investment Manager shall submit to the Principal an accounting of all
transactions effected by it since the last report up to the date of termination. Upon the
expiration of the ________(__) days from the date of submission, the Investment Manager
shall forever be released and discharged from all liability and accountability to anyone with
respect to the Portfolio or to the propriety of its acts and transactions shown in such accounting,
except with respect to those objected to in writing by the Principal within the __________(__)
day period.
Remittance of Net Assets of the Portfolio - Upon termination of the Agreement,
16.
the Investment Manager shall turn over all assets of the Portfolio which may or may not be
in cash to the Principal less the payment of the fees provided in this Agreement in carrying
out its functions or in the exercise of its powers and authorities.
This Agreement or any specific amendments hereto constitute the entire agreement
between the parties, and the Investment Manager shall not be bound by any representation,
agreement, stipulation or promise, written or otherwise, not contained in this Agreement or
incorporated herein by reference, except pertinent laws, circulars or regulations approved
by the Government or its agencies. No amendment, novation, modification or supplement of
this Agreement shall be valid or binding unless in writing and signed by the parties hereto.
IN WITNESS WHEREOF, the parties have hereunto set their hands on the date and at
the place first above set forth.
__________________________
(PRINCIPAL)
___________________________
(INVESTMENT MANAGER)
By:

______________________________
____________________________
APP. 25
08.12.31
RISK MANAGEMENT GUIDELINES FOR DERIVATIVES

Introduction
This appendix, together with the
Guidelines on Supervision by Risk
(Appendix 72) and other BSP issuances on
management of the different risks attendant
to banking activities, provides a framework
on which a bank can establish its risk
management activities. Accordingly, this
set of risk management guidelines for
derivatives should be read and used in
conjunction with all related BSP issuances
on risk management.
A bank, in using these guidelines to
evaluate the propriety and adequacy of its
risk management, must consider the
following principles:
a. No single risk management
system for derivatives is expected to work
for all banks considering that the structure
and level of derivatives activities will vary
from one bank to another. Each bank should
apply the principles set in these guidelines
in a manner appropriate to its needs and
circumstances. The BSP shall evaluate the
quality of a banks risk management
system based on the principles and
minimum requirements of these guidelines,
scaled to the derivatives activities being
undertaken.
b. The requirements prescribed in
these guidelines are merely minimum
standards and therefore, should not be taken
as the be-all for a banks risk
management. The board of directors1 has
the responsibility of ensuring that a banks
risk management system appropriately
captures its risk exposures and affords
proper management of these.
c. A trust entity within a bank must
have a separate risk management system.
However, the trust department may
in-source back office functions of its risk
management system with the bank proper
I.
only upon prior BSP approval on the basis

that such in-sourcing will not give rise to
potential conflict of interest.
II. Risk associated with derivatives
While derivatives primarily help
manage existing and anticipated risks,
derivatives themselves are exposed to the
risks they are designed to manage.
Moreover, simple derivatives, when
combined with other financial instruments,
may result in a structure that exposes a bank
to complicated risks. Thus, derivatives can
aggravate the risks of banks and of
counterparties if derivatives are not clearly
understood and properly managed.
A single derivatives product may
expose a bank to multiple risks as
enumerated under Appendix 72. These
categories are not mutually exclusive of
each other. Hence, derivatives activities
must be managed with consideration of all
these risks.
III. Risk management process for
derivatives
The management of derivatives activities
should be integrated into a banks overall risk
management system using a conceptual
framework common to the banks other
businesses. For example, price risk exposure
arising from derivatives transactions should
be assessed in a manner comparable to and
aggregated with all other price risk
exposures. Risk consolidation is particularly
important because the various risks contained
in derivatives and other market activities can
be interconnected and may transcend
specific markets.
At a minimum, the risk management
process for derivatives should be able to:
a. Identify the risks arising from its
derivatives activities in whatever capacity
1
In case of a local branch of a foreign bank, the equivalent management review arrangement (e.g., management committee,
regional review committee). In case of a trust entity, the trust committee.
APP. 25
08.12.31
it deals with the same. A bank must

likewise identify the impact of its
derivatives activities on its overall risk
profile. To properly identify risks, a bank
must understand the derivatives products
with which it is transacting and the factors
that affect them. Considering that changes
in the value of derivatives are highly
influenced by changes in market factors,
risk identification should be a continuing
process and should occur at both a
transaction and portfolio level.
b. Measure the risks arising from its
derivatives activities. A bank must have
measurement models or tools to quantify the
risks identified. These measurement tools
should be suitable to the nature and volume
of a banks derivatives activities. As the
complexity and volume of the derivatives
activity increases, the measurement tools
should correspondingly be more
sophisticated. The primary criteria for the
propriety of the measurement tools are
accuracy, timeliness, efficiency and
comprehensiveness with which these tools
can capture the risks involved and their
contribution to the decision-making process
of bank management.
c. Monitor the risks arising from its
derivatives activities. Derivatives products
are very sensitive to market factors, which
continually change. Thus, a bank should
have a mechanism to monitor the
responsiveness of derivatives to market
factors to enable it to review and assess its
risk positions. In order to effectively
monitor the risks, reports must be timely
generated in order to aid management in
determining whether there is a need to
adjust the banks derivatives positions.
d. Control the risks arising from its
derivatives activities. A bank must establish
limits to its derivatives exposure. These limits
should be comprehensive and aligned with
a banks overall risk tolerance. A banks
policies and procedures on control should

provide for contingencies when limits are
breached. A bank must allot lead time and
have a mechanism that enables management
to act in time to control unacceptable or
undesired exposures. A bank must also
establish a system that separates functions
susceptible to conflicts of interest.
IV. Sound risk management practices for
derivatives
Consistent with the criteria for sound
risk management practices in Item V of
Appendices 73 and 74, the BSP shall assess
the propriety and adequacy of a banks risk
management system for its derivatives
activities in accordance with the following
basic principles:
a. Active and appropriate board1 and
senior management oversight
A banks board of directors must set
the general policy or the policy direction
relating to the management of a banks
risks, including those arising from its
derivatives activities. This policy should
be consistent with the banks business
strategies, capital strength, management
expertise and risk profile. Accordingly, the
board of directors must understand the
nature and purpose of the banks
derivatives activities and the role
derivatives play in the banks overall
business strategy. Passive board of
directors approval is not acceptable. There
must be verifiable evidence of the board
of directors approval processes and that
senior management exerted effort to
explain the nature and purpose of the
derivatives activities to the board of
directors (e.g., minutes of board of directors
meetings documenting presentations and
reports to the board of directors and the
approval processes).
The board of directors must review and
pre-approve new derivatives products as
1
In case of a local branch of a foreign bank, the equivalent management review arrangement (e.g., management committee,
regional review committee). In case of a trust entity, the trust committee.
APP. 25
08.12.31
well as significant related policies and

procedures. Central to the approval of new
products is defining when a product or
activity is new in order to ensure that
variations on existing products receive the
proper review and authorization. Policies
should also detail authorized activities (e.g.,
at what stages approvals should be
obtained, from whom approvals should be
obtained), those that require one-time
approval and those that are considered
inappropriate.
The board of directors must be apprised
of the banks derivatives exposures on a
timely basis in order to enable the board
of directors to act on such exposures
accordingly. Consequently, there should
be an established reporting methodology
to ensure that the board of directors
receives, on a continuing basis, detailed
information regarding the banks risk
exposures from derivatives, including the
impact to the banks overall risk profile,
earnings and capital. These reports should
include both normal and stress scenarios.
Pursuant to the general policy or policy
direction on risk management set by the
board of directors, senior management must
adopt adequate policies and procedures for
conducting the banks derivatives activities
on both a long-range and day-to-day basis.
Policies should clearly delineate
responsibility for managing risk, and
provide effective internal controls and a
comprehensive risk-reporting process.
Policies must also keep pace with the
changing nature of derivatives products and
markets and therefore must be reviewed
on an on-going basis. Senior management
should ensure that the various components
of a banks risk management process are
regularly reviewed and evaluated. Internal
evaluations may be supplemented by
external auditors or other qualified outside
parties.
The quality of oversight provided by the
board of directors and senior management
to a banks derivatives activities will be

reflected in the overall risk management
process, the adequacy of resources
(financial, technical expertise, and systems
technology) devoted to handle derivatives
activities and its use of the monitoring
reports. The board of directors and senior
management shall be responsible for
ensuring that bank personnel comply with
prescribed risk management standards and
sales and marketing guidelines.
b. Adequate risk management policies
and procedures
A bank must establish policies and
procedures to guide its personnel in
conducting derivatives activities. These
risk management policies must be
reflective of a banks current strategy and
practice.
A bank should not issue policies and
procedures for derivatives in isolation. All
aspects of the risk management process for
derivatives activities should be integrated
into the banks over-all risk management
system to the fullest extent possible using
a conceptual framework common to the
banks other activities. Risk management
policies should be comprehensive,
covering all activities of the bank. The BSP
will evaluate the degree to which controls
covering derivatives activities have been
integrated in other issuances of the bank
covering aggregate risk-taking activities
For banks that conduct derivatives
transactions with subsidiaries and affiliates,
there should be policies and procedures
that describe the nature, pricing,
monitoring, and reporting of acceptable
related-party transactions.
All risk management policies and
procedures must be written, well
communicated to all personnel involved in
the derivatives activities and readily
available in user-friendly form, whether the
same is a hard or soft copy thereof. A bank
must also put up systems and procedures
to ensure an audit trail evidencing the
APP. 25
08.12.31
dissemination process for new and

amended policies and procedures.
At a minimum, a bank is expected to
have:
1. Comprehensive, updated and
relevant risk policy manual(s);
2. Operations manual(s) or similar
documents that describe the flow of
transactions among and between the
relevant units and personnel in a banks
treasury (front office, back office and
accounting) and risk management unit;
3. Approved product manual(s) that
includes product definition, benefits and
risks, pricing mechanisms, risk
management processes, capital allocation
guidelines, tax implications and other
operating procedures and controls for the
banks derivatives activities.
c. Appropriate risk measurement
methodologies, limits structure, monitoring
and management information system
The process of measuring, monitoring
and controlling risk should be carried out
independently from individuals conducting
derivatives activities. An independent
system of reporting exposures to both
senior level management and to the board
of directors is critical to the effectiveness
of the process.
(1) Measurement methodologies
A bank must be able not only to
accurately quantify the multiple risk
exposures arising from its derivatives
activities but also aggregate similar risks
across the different activities of the bank
to the fullest extent possible. A bank must
develop a risk measurement model
appropriate to its portfolio. Accordingly, a
bank must evaluate the assumptions used,
computational requirements, procedures
for computing the risk metric, sourcing of
inputs used in the measurement process,
including the theoretical reasons for a
particular input choice, and how these
concepts apply to the banks portfolio.
The risk measurement system should

be structured to enable management to
initiate prompt remedial action, facilitate
stress-testing, and assess the potential
impact of various changes in market factors
on earnings and capital.
A risk
measurement system is considered sound
if it is capable of comprehensively
capturing risks from: (a) the banks on and
off-balance sheet exposure; (b) all relevant
market factors; and (c) normal
circumstances and stress events. Sound
risk measurement practice includes
identifying possible events or changes in
market behavior that could have
unfavorable effects on the bank and
assessing the ability of the bank to withstand
these events or changes. The stress testing
should include not only quantitative
exercises that compute potential gains or
losses but also qualitative analyses of
actions that management might take under
particular scenarios.
A banks risk measurement system
should provide appropriate pricing and
valuation procedures to ensure best
execution for both proprietary trading and
those undertaken for clients and
mark-to-market/model (MTM) methodology
for derivatives instruments that follows
established MTM regulations and Philippine
Accounting Standards (PAS 39).
New measurement models whether
developed internally or purchased from
vendors, should be subject to an initial
validation before it is used. Internally
developed models require more intensive
evaluation where they have not been
market-tested by external parties. The
validation process should consist of a
review of the logic, mathematical or
statistical theories, assumptions, internal
processes and overall reliability of a banks
measurement models, including the
compatibility of the measurement model
with the banks technology and systems.
APP. 25
08.12.31
The validation must be undertaken by a

technical expert independent from the unit
that developed the model. For example,
pricing systems developed by a trader is
required to be independently validated by
a corresponding technical expert from the
banks risk management unit. If no such
personnel from the risk management unit
exists, an independent validation may be
performed by internal audit provided that
internal audit has the necessary expertise.
A bank may also avail of the services of an
independent outside expert. Thereafter,
the frequency and extent to which models
are validated depends on changes that
affect pricing, risk presentation or the
existing control environment. Changes in
market conditions that affect pricing and
risk conventions, which model
performance, should trigger additional
validation review.
Risk management policies should
clearly address the scope of the validation
process, the frequency of validations,
documentation requirements, and
management responses. At a minimum,
policies should require the evaluation of
significant underlying algorithms and
assumptions before the model is put in
regular use, and as market conditions
warrant thereafter.
Such internal
evaluations should be conducted by parties
who, where practicable, are independent
of the business sector using or developing
the model. The evaluation may, if
necessary, be conducted or supplemented
with reviews by qualified outside parties,
such as experts in highly technical models
and risk management techniques.
(2) Limits structure
A bank must specify individual limits
for all types of risks involved in a banks
derivatives activities. A bank should use a
variety of limits to adequately capture the
range of risks or to address risks that the
measurement system does not capture.
These limits should be integrated into the
bank-wide limit structure to ensure

consistency with the board of directorapproved risk appetite and business
strategy.
The limit structure should be realistic
taking into consideration the target budget,
level of earnings and capital. Limits must be
documented and promptly communicated to
all relevant personnel. Limits must be
reviewed at least annually or more
frequently, if circumstances warrant, in order
to ensure that limits reflect the banks past
performance and current position.
Limits should be continually analyzed
as regards its impact on target income,
earnings and capital. These analyses should
be submitted/reported to the board of
directors. Any excess over the limit must
be approved only by authorized personnel
and immediately reported to senior
management and depending on the
seriousness, also to the board of directors.
The seriousness of limit exceptions
depends upon managements approach
towards setting limits and on the actual size
of individual and organizational limits
relative to the banks capacity to take risks.
A bank with relatively conservative limits
may encounter more exceptions to those
limits than that with less restrictive limits.
There must also be mechanisms for the
correction of breach of these limits.
A banks limit structure should address
the following:
(a) Definition of a credit exposure;
(b) Maximum credit exposure to an
individual counterparty;
(c) Credit concentrations;
(d) Maximum nominal exposure:
(i) per trader and per transaction; and
(ii) position limits.
(e) Approved credit risk mitigation
techniques;
(f) Appropriate loss exposure triggers:
(i) loss alert;
(ii) stop loss;
(iii) value-at-risk; and
APP. 25
08.12.31
(iv) earnings-at-risk.
(3) Monitoring
Monitoring of risk exposures, market
conditions, and trading positions should be
done at least daily. Derivatives instruments
are highly influenced by movements in
market factors. Thus, a bank must have a
mechanism that can track and analyze the
effect of market movements on its
derivatives exposures.
To ensure proper monitoring of risks, a
bank is expected to have technology and
systems that can (a) track movements in
reference variables (underlying) and other
market factors affecting the value of the
derivatives instruments, such as trigger
events; and (b) incorporate observed
market movements into the pricing and
valuation of derivatives instruments.
While monitoring is undertaken
independently from the personnel
conducting derivatives activities, bank
traders are expected to actively monitor
their positions to ensure that they do not
breach their limits. Bank traders should not
wait until a limit is breached to alert senior
management and risk control units.
Instead, traders should promptly report
unanticipated changes and progressively
deteriorating positions, as well as other
significant issues arising from their
positions, to the risk control function and
responsible management.
(4) Management information system
A bank must institute an information
system that generates accurate and incisive
reports to ensure that management and the
board of directors are timely and regularly
apprised of the banks derivatives
exposures. A bank is expected to have
policies and procedures pertaining to the
derivatives reporting specifying, among
others, the types of derivatives reports to
be generated, the purpose and contents
thereof, responsible units that will generate
the reports, frequency and deadlines of
reports, recipients/users of reports, and the
type of action expected from the users of

the report. At a minimum, management
reports should contain the following:
outstanding derivatives positions,
compliance with or status of positions as
against limits, analysis of derivatives
positions, along with other bank exposures,
in relation to the impact to earnings and
capital, monitoring of trigger events, and
deviations from established policies and
procedures and justifications thereof.
The management information system
must be able to translate the measured risks
from derivatives activities from a technical
and quantitative format to one that can
easily be read and understood by senior
managers and directors, who may not have
specialized and technical knowledge of
derivatives products. Such a system
enables management and the board of
directors to judge the changing nature of
the banks risk exposures. The electronic
data processing capability must be
commensurate to the volume and
complexity of the banks derivatives
activities to facilitate the generation of
needed reports.
The frequency and content of board of
directors and management reporting will
ultimately depend upon the nature and
significance of derivatives activities.
Where applicable, board of directors and
management reports should consolidate
information across functions and
divisions. Board of directors and
management reporting should be
tailored to the intended audience,
providing summary information to senior
management and the board of directors
and more detailed information to bank
traders.
Management reports should be
generated by control departments
independent of the risk-takers. When
risk-takers provide information (e.g.,
valuations or volatilities on thinly traded
derivatives contracts) for management
APP. 25
08.12.31
reports, senior management should be

informed of possible weaknesses in the
data, and these positions should be audited
frequently.
d. Comprehensive internal controls
and independent audits
A sound system of internal controls
promotes effective and efficient operations,
reliable financial and regulatory reporting,
and compliance with relevant laws,
regulations and policies of the bank. In
determining whether a banks internal
controls meet these objectives, the BSP will
consider the overall control environment
of the bank, particularly, the process of
identifying, measuring, analyzing and
managing risk, the adequacy of
management information systems, and
degree of adherence to control activities
such as approvals, confirmations and
reconciliations. Control of the reconciliation
process is particularly important where
there are differences in the valuation
methodologies or systems used by the
front and back offices.
(1) Risk control
A bank should have an independent
risk control unit responsible for the design
and implementation of the banks risk
management system. A strong risk control
function is a key element in fulfilling the
oversight responsibilities of board of
directors and senior managers. This unit
must be independent from business trading
units and should report directly to senior
management of the bank. The role and
structure of risk control function should be
commensurate to the nature, complexity
and extent of a banks derivatives activities.
A risk control unit should regularly
evaluate risk-taking activities by assessing
risk levels and the adequacy of risk
management processes. It should also
monitor
the
development
and
implementation of control policies and risk
measurement systems. It should analyze
daily reports produced by the banks risk
measurement model, including an

evaluation of the relationship between
measures of risk exposure and trading
limits. Risk control personnel staff should
periodically
communicate
their
observations to senior management and
the board of directors.
A banks control structure shall be
considered sound if all the following
elements are present:
(a) Formal approval process for new
products
A bank should have an effective
process to evaluate and review risks
involved in products that are either new to
the bank or new to the market and of
potential interest to the bank. A bank that
desires to engage in new products and
transactions must first subject these
products and transactions to a rigorous
review and approval process. This will
ensure that all bank personnel involved in
the activity have sufficient knowledge of
the product or transaction, and that the
ensuring risk exposures can be identified,
measured and analyzed. The process must
be contained in a board of directorsapproved policy that is fully documented
and must be implemented consistently and
with integrity.
Before initialing a new derivatives
activity, all relevant personnel should
understand the product. Risks arising from
the new product should be integrated into
the banks risk measurement and control
systems. The new product approval
process should include a sign-off by all
relevant areas such as risk control,
operations, accounting, legal, audit, and
senior management and trading operations.
Defining a product or activity as new
is central to ensuring that variations on
existing products receive the proper review
and authorization. Factors that should be
considered in classifying a product/activity
as new include: capacity changes (e.g.,
end-user to dealer), structure variations
APP. 25
08.12.31
(e.g., non-amortizing swap versus

amortizing interest rate swap), products
which require a new pricing methodology,
legal or regulatory considerations, or
market characteristics (e.g., foreign
exchange forwards in major currencies as
opposed to emerging market currencies).
A bank should introduce new products
in a manner that adequately limits potential
losses and permits the testing of internal
systems.
(b) Segregation of functions/units
subject to conflict of interest
A bank must separate the business unit
conducting the derivatives activities from
the unit/s tasked with the checking,
accounting, reporting and control functions
of its derivatives activities.
A bank should have policies and
procedures addressing conflicts of interest,
particularly among the following functions:
proprietary trading, sales or marketing
desks/units, personal trading, and asset
management.
A bank that conducts derivatives
activities with its subsidiaries and/or
affiliates must establish policies and
procedures to avoid actual, or even the
appearance of a conflict of interest.
Off-market rates between related parties
should generally be forbidden.
A bank should avoid dealing in
transactions conducted at off-market rates.
A bank should have internal policies
defining what constitutes market rates and
identify the range of deviation from the
benchmark rates which could still be
considered as market rates. The banks
monitoring system should be able to alert
management of any breaches in the rate
tolerance levels and the appropriate action
that should be taken. A bank must be able
to justify any off-market transaction.
(c) Competent
and
adequate
personnel who are properly supervised
The increased complexity of
derivatives activities requires highly skilled
staff particularly in the risk-taking, risk
control, and operational functions.

Management should regularly review the
knowledge, skills and number of people
needed to engage in the banks derivatives
activities. The staff must be appropriately
balanced among the different areas
involved in derivatives activities such that
no area is understaffed in terms of number
or skill.
Staff turnover can create serious
problems, especially if knowledge is
concentrated in a few individuals. The
impact of staff turnover can be particularly
acute in specialized trading markets where
bank traders are in high demand and are
often recruited in teams.
To mitigate business continuity and
succession risk arising from a high staff
turnover, a bank should devise a system
of building technical expertise across
involved personnel through continuous
technical training, periodic rotation and
cross-training of staff members performing
key
functions
and
developing
understudies.
The board of directors should ensure
that the power and control delegated to
these expert personnel are not abused.
Therefore, the board of directors must
establish appropriate controls over their
activities.
(d) Independent control functions or
units
The risk control and audit units should
possess the authority, independence, and
corporate stature to enable them to
identify and report their findings
unimpeded by bank traders. It is equally
important to employ individuals with
sufficient experience and technical
expertise to be credible to the business
line they monitor and senior executives
to whom they report.
2. Audit
Audits should be conducted by
qualified professionals who are
independent of the business line being
audited. Audits should supplement, and
APP. 25
08.12.31
not be a substitute for, risk control

function.
The scope of audit coverage should be
commensurate with the level of risk and
volume of derivatives activity. The audit
should include an appraisal of the
effectiveness and independence of the
banks risk management process; the
adequacy of operations, compliance,
accounting and reporting systems;
propriety of risk measurement models;
and the effectiveness of internal controls.
Auditors should test compliance with the
banks policies, including limits.
The level of auditor expertise should
be consistent with the level and
complexity of activities and degree of risk
assumed. A bank may choose to
out-source audit coverage to ensure that
the professionals performing the work
possess sufficient knowledge and
experience.
Procedures should be in place to
ensure that auditors are informed of
significant changes in product lines, risk

management methods, risk limits,
operating systems, and internal controls so
that the auditors can update their scope and
procedures accordingly. Auditors should
periodically review and analyze
performance and risk management reports
to ensure that areas showing significant
changes are given appropriate attention.
The audit function must have the
support of management and the board of
directors in order to be effective.
Management should respond promptly to
audit findings by investigating identified
system and internal control weaknesses
and implementing corrective action.
Thereafter,
management
should
periodically monitor newly implemented
systems and controls to ensure they are
working appropriately. The board of
directors, or designated committee, should
receive reports tracking managements
actions to address identified deficiencies.
APP. 26
08.12.31
SALES AND MARKETING GUIDELINES FOR DERIVATIVES

(Appendix to Section X602)
General principle
A bank, in dealing with its clients,
should always act with honesty, fairness and
in pursuance of the best interests of its
clients. Due to the complex nature of
derivatives and the increasingly
sophisticated products introduced into the
market, a bank acting as dealer or broker
must have appropriate controls and
procedures to ensure the suitability of the
transactions to its clients. A bank should
ensure that (1) a client understands the
nature of the transaction and the risks
involved and (2) the transaction meets the
clients financial objectives and risk
tolerance. A bank should also disclose
sufficient, accurate and comprehensible
information about derivatives products,
including inherent risks, in a clear and
balanced presentation in order to enable
its clients to make informed investment
decisions.
These guidelines prescribe the
minimum standards for sales and
marketing procedures for banks acting as
dealers or brokers of derivatives.
I.
II. Client suitability guidelines

A bank should ensure that the
derivatives products it offers to a client are
appropriate for that client through a client
suitability process which involves obtaining
client information, classifying a client
according to his/its financial sophistication
and conducting a suitability review.
a. Client information
A bank, at the inception of a possible
business relationship with a client, should
obtain from said client information about
his/its financial situation, experience, and
financial objectives relevant to his/its
desired products/ services. A bank should
ensure that the clients risk and return
1\
objectives are clearly identified. This can

be done through questionnaires and
interviews. A bank may design and use its
own system for obtaining client information
that would be responsive to its client
suitability process.
At a minimum, client information,
including client classification, should be
reviewed and updated annually or earlier,
in cases of material changes in the clients
financial situation or goals.
b. Client classification
Based on the information obtained from
a client, a bank should be able to ascertain,
at a minimum, a clients classification
according to financial sophistication as
embodied in Section X602 and its
Subsections1/ and his/its risk tolerance. The
client classification should serve as basis
for a bank product/service offerings and
level of disclosures required.
In dealing with corporate clients, a bank
should determine whether the client is
specifically authorized to enter into all or
specific kinds of derivatives transactions
and the person/s authorized to act in its
behalf. A bank should also determine if a
corporate client has competent/ qualified
personnel to handle the proposed
derivatives activities. If a corporate client
seeks to participate in highly sophisticated/
more complex products, a bank should
require the client to incorporate in its board
resolution authorizing the latters
derivatives activities that it likewise has
appropriate risk management techniques
and systems sufficient to manage and
monitor the risks it will take.
In determining an individual clients
classification, a bank should consider the
following:
(1) The clients knowledge and
understanding of derivative transactions,
A bank, however, may adopt its own sub-classification for its own purposes.
APP. 26
08.12.31
related investments and the risks involved

therein, including the derivatives markets;
(2) The length of time the client has
been actively dealing with investment
and/or derivative products, the frequency
of dealings and the extent to which he has
relied on the investment advice of a bank
or any financial advisor, if any;
(3) The size and nature of investment
transactions that have been undertaken by
the client; and
(4) The clients financial standing,
which may include an assessment of his
net worth or the value of his portfolio.
A bank must make a record of the
classification under which each client is
categorized, including sufficient information
to support the categorization.
Only banks with Type 1 or 2 authorities
may originate or distribute authorized
derivatives products to non-sophisticated
end-users for investment purposes.
Non-sophisticated end-users should be
provided greatest protection compared to
all other client types.
c. Suitability review
Before presenting, proposing or
recommending a particular derivatives
product to a client, a dealer should
determine that the derivatives product is
suitable to the clients financial situation and
consistent with the clients mandates,
financial objectives and constraints.
At a minimum, a bank should consider
the following in choosing the derivatives
products/ services offerings to its clients:
(1) Investment amount or investible
funds;
(2) Concentration ratio (i.e., asset
allocation of the clients investible funds);
(3) Purpose for transacting in
derivatives transaction (e.g., hedging vs.
investment; long-term buy and hold as
opposed to short-term active trading);
(4) Holding period or investment
horizon;
(5) Clients regulatory and legal

circumstances;
(6) Liquidity needs;
(7) Returns objectives (e.g., income,
growth in principal, maintenance of
purchasing power);
(8) Risk tolerance; and
(9) Clients understanding of the risks.
A bank should maintain a record of
all the information as bases of its
suitability assessment. It is highly
recommended that a bank requires a
client to sign its conformity to the
suitability assessment (including the
information basis of the assessment) in
order to avoid disputes with the client
on its suitability assessment.
For non-sophisticated clients, a bank
should adopt a suitability statement
explaining simply and clearly why the
product offered is viewed suitable,
considering the clients needs and
preferences. To ensure the statement will
be effective, a bank should consider the
following features:
Simple and plain language: when
technical terms need to be incorporated,
they should be explained if the client is
unlikely to understand their meaning; and
Concise and clear messages:
lengthy explanations and extensive
statements are likely to reduce the
effectiveness of the statement and make
the client less likely to read the statement
properly.
Ideally, each suitability letter for
non-sophisticated will be different,
reflecting the approach taken by the bank
representative in obtaining client
information, the derivatives product
presentation, the clients profile and
considerations on which the investment
proposal was based, all of which involve
professional judgment. A bank, however,
can apply a degree of standardization to
aid quality control. A bank should clearly
APP. 26
08.12.31
link its proposed or recommended

derivatives product to the clients own
needs, priorities and attitude toward risk.
A bank may mention alternative products
suitable for the client. The suitability letter
should be signed by the client and the
officer authorized by the bank to advise/
sell/propose the recommended product.
A bank does not need to comply with
the requirement of suitability review in
cases where the client is classified as a
market counterparty, considering its
recognized sophistication. However, a
bank should be able to provide sufficient
support for its classification.
III. Disclosures
A bank should always be mindful of its
statements regarding its products/services,
whether the statements pertain to
promotion, marketing or sale thereof or in
the course of making the required
disclosures. A bank must institute
measures to ensure that its clients
understand the nature and risks in a
derivative transaction. These procedures
may vary with the sophistication of its
client. A bank can tailor-fit information,
marketing and sales presentations/materials
in accordance with the client classification
under Section X602 and its Subsections. A
bank should take further steps to
adequately disclose the attendant risks of
specific types of transactions when dealing
with an unsophisticated client, either
generally or with respect to a particular
derivatives transaction (e.g., nonsophisticated client or sophisticated client
with respect to complex product types). A
bank should adopt standards for its
publications/materials/disclosure
statements and review the aforementioned
documents regularly to ensure that they
meet the standards.
A bank, when providing information to
its clients, including potential clients, must
not knowingly misrepresent or give a false
impression in any of its advertisements,

electronic communications, written
materials (whether publicly disseminated
or not) or oral representations regarding the
financial derivatives offered. A
misrepresentation is any statement that
deviates from the truth or omits a material
fact or even tends to mislead the recipients.
a. Financial promotion (marketing
and sales)
A bank embarking on a financial
promotion, whether through a direct offer
or information/sales publications, should
ensure it gives sufficient information to
enable a client to make an informed
assessment of the derivatives transaction,
including its underlying. A bank must
prominently indicate its name in all its
promotional materials and must specify its
role or capacity in the transaction (e.g., as
issuer, dealer/distributor, broker).
A financial promotion is considered
clear, fair and not misleading if all the
following requisites are present:
(1) Any statement of fact, promise or
prediction is clear, fair and not misleading.
A statement should disclose relevant
assumptions;
(2) A client, by himself, can discern
from the presentation whether the
statement is a fact, promise or prediction;
(3) The accuracy of all material
statements of fact can be substantiated.
(4) Any comparison or contrast of a
product offered should be with another
investment intended to meet the same
needs or to serve the same purpose. The
facts on which any comparison or contrast
is made are verified, or alternatively, that
relevant assumptions are disclosed. The
comparison or contrast should be presented
in a fair and balanced way and includes all
factors which are relevant to the
comparison or contrast.
(5) The design, content or format of
any presentation does not disguise, obscure
or diminish the significance of any
APP. 26
08.12.31
statement, warning or other matter which

the presentation should contain;
(6) Disclosures on risks and warnings
should not be less prominent than any other
information on performance;
(7) No reference to an approval by a
regulatory body or its officials shall be
made, unless a written approval was
actually obtained;
(8) A recommendation to consult/refer
to a financial advisor, if the client has doubts
on suitability of derivatives product; and
(9) It does not omit any information,
the omission of which causes a material fact
to be misleading, unclear, or unfair.
A bank should consider the clients
knowledge of the transaction to which a
given information relates. A bank should
not assume that clients/recipients
necessarily have an understanding of the
derivatives product being promoted. A
bank should assess its usage of terms,
especially those which are technical. If
promotional or marketing materials are
specially designed for a targeted client base
reasonably believed to have particular
knowledge of the investment, this should
be made clear in the materials.
b. Product disclosures
A bank must endeavor to explain the
derivatives products it offers to its clients
to enable the latter make an informed
investment decision. Product disclosures
should present an adequate description of
at least (a) the nature of the derivatives
product, including the underlying, (b) the
amount of investment required and (c) the
risks involved.
The adequacy of
description depends on the target client
classification and type of product offered.
In general, disclosure should always be
presented in a balanced manner where the
potential benefits of an investment are
tempered by a fair indication of the risks
involved.
A product disclosure, which includes
an illustration of past or future performance
2\
of the derivatives product or its underlying,

must comply with the following:
(1) When using past performance of a
derivatives instrument, or its underlying,
to illustrate possible returns, the disclosure
should state that past performance is not
necessarily indicative of future
performance. This should be presented in
the main text of presentation material. Past
performance must be culled from a
sufficient time frame to provide a fair and
balanced indication of performance; and
(2) When using any forecast on the
economy, stock market, bond market and
economic trends of markets, the disclosure
should state that such forecast is not
necessarily indicative of the likely or future
performance of the instrument; and
(3) Illustrations of returns should
include worst case scenarios (i.e., not just
the likely or best scenarios). Benefits
shown in headline rates (pro-forma returns
highlighted) should be realistic and
achievable, and not based on unreasonably
optimistic view of events.
Product disclosures for derivatives
products with some form of guarantee or
protection must highlight which benefits
are guaranteed/protected and those which
are not. In case of structured deposit
products, a bank must ensure that any
representation or claim of PDIC guarantee
should have been pre-cleared with the
PDIC. In instances where the guarantee
or protection involves a cost to the client,
the bank must disclose the fee or charge
for the same. A bank should also disclose
the counterparty (e.g., issuer/guarantor) risk
involved to clients so that they are not
misled about the capital security/principal
protection. A bank, when applicable,
should state if the guaranteed or protected
amount is payable only at the end of the
term.
Product disclosures for leverage
products/transactions2\ should emphasize
that while these types of products/
Leverage or gearing can be employed in structured product to be able to offer high yields.
APP. 26
08.12.31
strategies amplify the potential gain from

an investment, they also increase the
potential loss thereof. A client who intends
to engage in margin buying, a means of
applying leverage in investing, must be
cautioned on possible loss exceeding the
margin or initial cash outlay.
c. Minimum required disclosures
The minimum required disclosure
should always be in writing. Except for a
market counterparty, a bank should require
its client to sign or initial the disclosure
statement as affirmation of the clients
receipt and understanding of the disclosure
statement. A bank may opt to draft
individual and separate suitability
assessment and disclosure statement to its
client or consolidate the same into a
separate document or incorporate these
with the main derivatives transaction
agreement/ contract.
Product-specific minimum disclosures
should include:
(1) The nature of the derivatives
product, including the underlying financial
instruments and how these instruments
work;
(2) Investment horizon or tenor of
financial derivatives;
(3) Fees and charges, whether
embedded in the structure or not;
(4) Details on the issuing entity in case
the dealing bank is not the issuing
institution, (i.e., the bank acts as a broker/
dealer, market maker);
(5) Returns or benefits likely to be
derived from the instrument, the amount
and timing thereof and whether the benefits
are guaranteed or not;
(6) All risk factors that may result in
the client receiving returns less than the
illustrated returns and factors affecting the
recoverable amount by the client;
(7) Details of conflicts of interest, if any;
(8) All termination clauses, when
appropriate, including charges and
restrictions3\;
(9) Any warning, exclusion or

disclaimer in relation to the product,
including, but not limited, to the following:
(a) The derivatives products carry
higher risks than those associated with
ordinary bank savings or time deposits;
(b) The transactions are risky and may
not be appropriate if client is not willing or
able to accept the risk of adverse movements
in the underlying securities/reference rates;
(c) Past performance of the underlying
reference is not a guarantee of future
performance.
(d) When applicable, a bank should
draw the attention of the client to the
following:
(i) The effect of early redemption of a
product on the return (e.g., penalties and a
poor return);
(ii) The availability of maximum benefit
advertised after a specified period; and
(iii) The pre-requisite conditions for the
advertised growth rate of income.
Complex products (i.e., those outside
the enumeration of instruments under
Subsection X602.1 (a)(2) must carry a
standard warning that they are not suitable
for all clients, and are intended for
experienced and sophisticated investors.
Complex products should carry appropriate
warnings on the high economic risks of
complex derivatives transaction, such as
(1) Loss of all or a substantial portion
of the investment due to leveraging or
other sophisticated practices;
(2) Volatility of returns;
(3) Lack of liquidity considering that
there may be no secondary market for the
instrument;
(4) Restrictions on transferring
interests; and
(5) Absence of information regarding
valuation and pricing.
Appendix 26a contains a sample
disclosure statement which a bank may
adopt in accordance with the features of the
derivatives product offered.
3\
For instance, for a structured deposit, the bank should ensure that the customer is fully aware of the tenor of the deposit
and that the principal amount is only guaranteed if held to maturity.
APP. 26
08.12.31
IV. Sales and marketing personnel

Any informational or promotional
presentation regarding derivatives products
should be undertaken only by personnel
who are knowledgeable on derivatives
products involved. A bank, in assessing
its personnels knowledge in derivatives
transactions, may consider the personnels
educational background, relevant training,
professional experience in rendering
investment advice, making presentations
regarding derivatives products or assessing
the propriety of investment products for a
client. Personnel involved in derivatives
transactions must likewise be familiar with
all relevant laws, applicable rules and
regulations and must ensure compliance
therewith.
At a minimum, a bank should establish
qualification standards for personnel
involved in derivatives activities as well as

comply with certification requirements
prescribed by existing securities laws, rules
and regulations. In addition, a bank should
implement, and maintain a reasonably
comprehensive system of training of
personnel geared at enhancing technical
knowledge of its personnel to enable them
to understand, explain the nature and risks
of a banks derivatives products and ensure
client suitability.
The banks board of directors and senior
management4\ shall be liable to its clients
for the acts performed and representations
made by sales and marketing personnel
in their official capacity. Notwithstanding
the foregoing, a banks board of directors
and senior management are not precluded
from filing the necessary action against the
erring sales and marketing personnel.
For purposes of this appendix, senior management shall comprehend officers starting from the level of the president
down to the level of vice presidents.
4\
APP. 26a
08.12.31
SAMPLE RISK DISCLOSURE STATEMENT FOR DERIVATIVES ACTIVITIES

While derivatives instruments are

utilized for hedging or managing investment
risk, derivatives instruments themselves
involve a variety of significant risks.
Considering the complexity of derivatives
products, these products are generally
unsuitable for non-sophisticated investors.
You should not deal in derivatives
products unless you understand their nature
and the extent of your exposure to the
attendant risks. And even assuming that you
understand derivatives transactions, you
should not deal with the same unless the
product is suitable for you in the light of your
circumstances, experience, financial position
and operational resources.
As in any financial transaction, you
should ensure that you understand and
comply with the regulatory requirements
applicable to you and/or limitations set by
your board of directors or other governing
body. You should also consider the legal,
tax and accounting implications of entering
into any derivatives transaction.
This product generally carries higher
risks than those associated with ordinary
bank investments and therefore not a suitable
substitute for savings or time deposits. These
transactions are risky and may not be
appropriate if you are not willing or able to
accept the risk of adverse movements in the
underlying securities/reference rates.
This transaction does not guarantee a
yield, return or income. Past performance
of the reference rate or similar instruments
is not a guarantee of future performance.
The income from the transaction may or may
not fluctuate depending on prevailing market
conditions.
(A bank need not adopt all the following
enumerated statements. It only has to
incorporate those statements that may be
applicable to the derivatives products or
transactions)
This transaction may be used for

hedging purposes. If you are entering into
the transaction for hedging purposes, this
product may not match your exposure
perfectly. You may be under or over hedged
or may be subject to other exposures as a
result of the transaction.
These
are
over-the-counter
derivatives which may pose liquidity risks to
you. These are generally not liquid because
there is no exchange or secondary trading
market through which you can dispose the
derivative. Bid and offer prices for these
instrument may not be quoted. Bid and offer
quotes, if any, are established by the dealers
in the instruments and consequently fair
price may be difficult to establish.
While you may terminate this

transaction prior to the specified termination
date, the cost of early termination may be
substantial. Pre-termination may reduce the
expected return or the investment amount,
even in the case of principal protected
structured products.
Product specific disclosures:
This transaction can be subject to the

risk of loss of the entire principal/notional
amount of the transaction. You may lose
some or all of your investment.
(For principal protected structured

products) While the principal for structured
deposits may be protected and carries PDIC
guarantee, returns are variable and are often
contingent on the performance of complex
financial instruments that an average customer
may not fully understand. There is still a
potential loss of the principal amount invested
if the structured deposit is not held to maturity,
i.e. there is an early redemption fee.
(For leveraged products/ transactions)

if the derivatives transactions require you to
put up a margin, you may sustain a loss of
the entire margin you deposited with the
APP. 26a
08.12.31
bank to establish or maintain your position. If

the market moves against you (i.e.,
unfavorably), you may even be called upon
to pay additional margin (known as margin
call) at short notice to maintain the position.
If you fail to do so within the time required,
your position may be liquidated at a loss and
you will be responsible for the resulting deficit.
(For
non-readily
realizable
investments) You may have difficulty selling
this investment at a reasonable price and, in
some circumstances, it may be difficult to sell
it at any price. Do not invest in this unless you
have carefully thought about whether you can
afford it and whether it is right for you.
These instruments often involve a high

degree of gearing or leverage, so that a
relatively small movement in the price of the
underlying asset or variable can result in a
much larger movement, unfavorable or
favorable, in the price of the instrument. The
price of the instrument can therefore be volatile
In buying options, the maximum loss

can be limited to the premium (plus any
commission or transaction charges) when the
price of the underlying asset moves against
you because you can simply allow the option
to lapse. However, if you buy a call option
on another derivatives instrument, e.g.,
futures contract, the exercise of the option
may expose you to the risks for that particular
derivatives.
If you write an option, the risks are

considerably greater. You may be liable for
margin (i.e., minimum level of collateral) to
maintain your position and a loss may be
sustained well in excess of the premium

received. By writing an option, you are
accepting a legal obligation to purchase or
sell the underlying asset if the option is
exercised against you, however far the
exercise price may have moved from the
market price of the underlying asset. If you
already own the underlying asset (known
as covered call option), the risk is reduced.
However, if you do not own the underlying
asset, the risk can be unlimited. Only
experienced persons should contemplate
writing uncovered options, and then only
after securing full details of the applicable
conditions and potential risk exposure.
Any scenario analysis is being provided
for illustrative purposes only. It does not
represent actual prices that may be available
to you. It does not present all possible
outcomes or describe all factors that may
affect the value of the transaction.
No advice on investments has been
given. If you have any doubt about the
suitability of the product, you should contact
a financial advisor or carefully consider
whether the product is suitable for you.
In entering into any derivatives activity
with or arranged by us, you should
understand that we are not acting in the
capacity of your financial adviser due to the
inherent conflicts of interest in simultaneously
acting as dealer and financial adviser.
Notwithstanding the conflict of interest, we
may act as your financial adviser only if you
have so agreed in writing and only to the
extent so provided.
THIS STATEMENT DOES NOT PURPORT TO DISCLOSE ALL OF THE RISKS OR RELEVANT
CONSIDERATIONS IN ENTERING INTO DERIVATIVES TRANSACTONS. YOU SHOULD REFRAIN
FROM ENTERING INTO ANY SUCH ACTIVITY UNLESS YOU FULLY UNDERSTAND ALL SUCH
RISKS AND HAVE INDEPENDENTLY DETERMINED THAT THE ACTIVITY IS SUITABLE FOR YOU.
(Name of Bank)
I/We have read and understood the risk warning set out above.
Date
(Signature of Customer)
(As amended by Circular 594 dated 08 January 2008)
APP. 27
05.12.31
ACCOUNTING GUIDELINES FOR DERIVATIVES

Incorporated in X602.5
APP. 28
05.12.31
CLEARING PROCEDURES
a. Clearing regulations in general
(1) Time and place of exchanges. The
clearing of checks, bills and other demand
items herein contemplated shall be
conducted in the BSP-designated clearing
centers. The hour for making such exchanges
shall be at 4:00 P.M. on each business day
as well as on all local holidays in the
clearing centers and/or at such other times
as may be fixed by the BSP.
(2) Settling clerks. The head office of
each bank, together with all its branches
within the designated clearing areas, shall
be considered as a unit and shall be
represented by one (1) or more [but not
exceeding six(6)] competent clerks/
representatives to deliver and receive the
items to be exchanged. The facsimile
signatures and NBI clearances of these
clerks/representatives shall be submitted to
the Accounting Department. All settling
clerks/representatives shall be issued their
respective ID cards which shall be presented
for admission in the clearing office or
regional units.
(3) Items for clearing. All checks and
documents payable on demand and drawn
against a bank/branch allowed to clear may
be exchanged through clearing centers
designated by the BSP. As evidence of the
channel through which they were
negotiated, all items to be exchanged shall
be properly endorsed and guaranteed before
being sent to the Clearing Office/Unit and
shall bear the name of the bank/branch,
institution or entity to which they belong.
Likewise, they shall be impressed by the
sending bank/branch, institution or entity
with a special stamp to the effect that they
have been cleared through the clearing
facilities of the BSP. The Clearing Office/
Unit of the BSP shall in no way be
responsible for any flaw or defect in the

items or for any irregularity whatsoever in
any of their features.
(4) Clearing procedures.
(a) Procedure for regular clearing. Each
bank/branch through its representative/s,
shall deliver their respective demands in
sealed envelopes made out separately
against the other banks/branches,
institutions or entities allowed to clear:
Provided, That Negotiable Orders of
Withdrawal shall be contained in an
envelope exclusively for the purpose:
Provided, further, That the BSP may, at its
discretion, verify the contents of sealed
envelopes. The total of each demand shall
be listed in a certified adding machine tape
attached to the sealed envelope. In the
acknowledgment of receipt of the demands
against the bank/branch, institution or entity
he represents, the settling clerk concerned
shall prepare and sign a Clearing Office
Statement (Clearing Form No. 4) in duplicate
for local clearing. The original and duplicate
of the statement shall be submitted to the
clearing office in Manila or the regional
clearing centers. The original shall be
retained and shall be the basis for settlement
of clearing balances in the respective
deposit accounts with the BSP. The
duplicate, duly authenticated by the Manila
or the Regional Clearing Officer concerned,
shall be returned to the bank/branch,
institution or entity concerned through their
clearing representatives. The duplicate shall
be the basis of each bank/branch, institution
or entity for taking up corresponding entries
in their respective books of accounts on the
date of clearing.
For out-of-town clearing, the Clearing
Office Statement (Clearing Form No. 4-A)
shall be prepared in quadruplicate for
APP. 28
05.12.31
authentication by the Clearing Officer who

retains one copy. The third copy shall be
returned to the sending bank/branch,
institution or entity coursed through their
respective clearing representatives. The
original and duplicate shall be shipped to,
or retained in, the Manila Clearing Office as
the case may be.
Out-of-town demands presented in a
clearing center against a bank without any
branch in that particular clearing area shall
be delivered to the Clearing Officer who
shall prepare a debit advice (Clearing Form
No. 4-B) for the Head Office of the drawee
bank/branch concerned in the Manila
clearing area.
In the acknowledgement of receipt of
out-of-town demands, the duplicate of the
Clearing Office Statement and/or the original
of the debit advice/s, the settling clerks of
respective drawee banks/branches in each
clearing center shall sign the shipping
manifest. These clearing office statements and/
or the debit advice/s shall serve as bases for
the Head Offices in the Manila clearing area
to record the result of out-of-town exchanges
in their books on the date of receipt.
Clearing operations between regional
clearing centers and the Manila Clearing
Center is shown in Appendix 28a (Tarlac,
Tarlac used as sample).
(b) Procedure for special clearing.
Demands may be presented directly to the
drawee banks/branches concerned at times
other than that specified in Item a. For this
purpose, the Special Clearing Receipt (Cash
Form No. 10) shall be used. The original and
duplicate copies of the receipt shall be
retained by the sending bank/branch, and
the triplicate shall be delivered to the drawee
bank/branch. At the following clearing
season, the original of the Special Clearing
Receipt shall be presented as a demand
against the bank/branch, institution or entity
concerned. Nothing in this section shall
prevent direct settlement between the parties
concerned.
(c) Procedure for returned items. Items

which should be returned for any reason
whatsoever shall be presented not later than
the next regular clearing for local exchanges.
Out-of-town exchanges shall be returned
within the period specified in the
Memorandum to Authorized Agent Banks
announcing the opening of clearing facilities
in each of the authorized regional clearing
centers. Items for return shall be sealed in
special red envelopes and shall be
considered and accounted for as debits to
the demanding banks/branches, and credits
to the returning banks/branches. Nothing in
this paragraph shall prevent direct settlement
of returned items between the parties
concerned.
Mis-sorts or items misdirected through
clearing shall be returned at the next clearing
session in special yellow envelopes and
shall be accounted for as debits to the bank/
branch which had misdirected the items.
(d) Procedure for excluded member(s).
In case any bank/branch is excluded from
clearing on any day on account of tardiness
or absence, value shall be given to the
deliveries of the others present for credit to
their accounts in accordance with normal
settling procedures. The total of said
deliveries shall be debited to the account of
the excluded bank/branch. The bank/branch
excluded from clearing shall, as heretofore,
send its representative to the Clearing Office
/Unit to prepare the clearing statement and
accept deliveries on it. In case of failure to
send its representative, the Clearing Office/
Unit shall, in the meantime, receive such
deliveries which should be picked up by the
excluded bank/branch not later than 5:30
p.m. on the same day.
In the event of a strike or force majeure
which prevents a bank/branch allowed to
clear from having access to its representative
records or otherwise ascertaining whether
checks delivered to its representatives shall
be honored or returned, notice of such
circumstances shall immediately be given
APP. 28
05.12.31
to the BSP Clearing Office/Unit. In such

cases, items drawn against the bank/branch
concerned shall not be presented for
clearing.
(5) Loss of clearing items. Any loss or
damage arising from theft, pilferage, or other
causes affecting items in transit shall be for
the account of the sending bank/branch
concerned.
b. Inter-regional clearing operations in
Visayas and Mindanao. Inter-regional
clearing operations shall be conducted in
Visayas and Mindanao through the facilities
of BSP Regional Clearing Units. Checks
received by banks/branches in one
clearing area against banks/branches
located in the other clearing areas may
be presented for clearing in accordance
with these rules.
(1) Items for clearing. Items for clearing
shall consist of demand items consisting of
checks and/or other documents drawn
against banks/branches located in each of
the clearing areas.
The special brown envelope for
demands against banks located in the four
(4) regional clearing centers shall bear one
(1) inch stripe on the left side according to
the following color scheme:
Regional Clearing Unit
Dumaguete
General Santos
Ozamis
Surigao
Color
Brown
Pink
Orange
Black
The color code of clearing envelopes for

other regional clearing centers invoiced in
inter-regional clearing as specified in
Circular Letter dated 20 September 1978,
shall continue to be observed.
(2) Settlement of clearing balances.
Clearing balances of participating banks/
branches shall be debited or credited, as the
case may be, to the clearing accounts of their
respective head offices in Manila in the
afternoon of the same date the demands are

presented for clearing.
(3) Miscellaneous provisions. Checks
for inter-regional clearing shall be sealed in
special brown envelope measuring 7" x 1"
with the destination To Cebu or To
Zamboanga, etc., as the case may be,
properly stated in bold letters of not less than
one (1) inch. The left side of the envelope
shall bear one (1) inch stripe according to
the following color scheme:
Regional Clearing Unit
Bacolod
Cagayan de Oro
Cebu
Davao
Iloilo
Tacloban
Zamboanga
Color
Green
White
Blue
Red
Violet
Royal Blue
Gray
All participating banks shall keep photo

copies/microfilms of checks presented for
clearing.
Any loss or damage arising from theft,
pilferage, or other causes affecting items in
transit shall be for the account of the sending
bank/branch concerned.
(4) Guidelines for inter-regional clearing
(a) For an orderly process of exchanges,
each bank/branch representative shall
deposit the demand envelopes against
drawee banks/ branches located in other
regional clearing areas in the respective
compartments assigned to each of the
participating banks/branches.
(b) The bank/branch representative
shall sort the demand envelope received
according to destination. Amount of
demands shall be posted as Debits (Items
Received) in their respective Clearing
Statements (Clearing Form 4-A) to be
prepared in four (4) copies for distribution
as follows:
Original . . . . . . . Sending Clearing Unit
Duplicate . . . . . . Sending Bank/Branch
APP. 28
05.12.31
Triplicate . . . . . . . Head Office of Drawee

Bank/Branch
Quadruplicate . . Drawee Bank/Branch
(c) The Regional Clearing Officer shall
sort according to bank/branch and
destination the demand envelopes delivered
for the account of banks without branches
in his clearing area. Corresponding Debit
Statement (Clearing Form 4-B) shall be
prepared in three (3) copies for distribution
as follows:
Original . . . . . . Head Office of Drawee
Bank/Branch
Duplicate. . . . . Drawee Bank/Branch
Triplicate . . . . . Sending BSP Clearing Unit
(d) The quadruplicate of the Clearing
Statements and duplicate of the Debit
Statements shall be attached to the demand
envelopes for shipment to the Regional
Clearing Units concerned. In acknowledgment of receipt of inter-regional
demands, clearing representatives of
respective bank/branch at destination shall
sign the covering manifest (in duplicate). The
original shall be returned to the sending
clearing unit.
(e) In the Regional Clearing Unit where
the demands are presented, a Clearing
Advice (Form 4-B(a)) shall be prepared for
inter-regional as well as local and out-oftown (Manila) clearing results reflected in
clearing statements and debit statements.
After the 9:00 A.M. clearing session, the
results of the inter-regional clearing
transactions shall be posted in the Clearing
Advice, striking a sub-total to determine that
it is in balance. In the same Clearing Advice,
the results of local and "on Manila" clearing
shall be posted after the 4:00 p.m. session
to complete the transactions for the day.
The original of the clearing advice
shall be sent to the Head Office of the
Drawee Bank Division, Manila, bound
together with:
(1) The duplicate of the local and outof-town ( Manila ) clearing statements;
(2) Triplicate of inter-regional clearing
statements;
(3) The original of the debit statements;
and
(4) The demand envelopes containing
on Manila checks/returns.
The Clearing Advice shall be the basis
for entries in the books of accounts of the
bank Head Offices concerned. The
duplicate of the Clearing Advice shall be
forwarded to the Drawee Bank/Branch
while the third copy shall be retained as
office file of the Regional Clearing Unit.
(f) The daily results of both local, outof-town (Manila) and inter-regional clearing
shall be summarized in the consolidated
clearing proof sheet. For purposes of
transmission to the Head Office through the
DEX machine, the results of clearing as
reflected in the consolidated proof sheet
shall be condensed in Clearing Form 4-C (a).
Any exception or observation which required
immediate attention shall be explained in
the memorandum portion.
(g) All Regional Clearing Officers shall
acknowledge receipt of all incoming
pouches and/or shall give notice of delay/
non-arrival of pouch/es or other exception/
s to the sending clearing unit concerned on
the Confirmation Slip not later than the
following business day. If for any reason,
clearing is suspended or there is no demand
against any of the other clearing unit and as
no pouch will be send to all or any of the
clearing units, the Confirmation Slip, which
shall be placed in an envelope properly
addressed to the clearing unit concerned
and d u l y m a r k e d i n b o l d l e t t e r s
CONFIRMATION SLIP FOR IMMEDIATE
TRANSMITTAL TO ADDRESSEE, shall be
sent through the pouch to Manila. A
duplicate of the Confirmation Slip for the
file of the Clearing Operations Division,
Manila Office shall be stapled to the
envelope.
APP. 28
05.12.31
(h) All shipments of pouches shall be

accompanied by a check and manifest
which shall be properly acknowledged by
the receiving clearing unit. A separate
transmittal letter shall be prepared in
duplicate for all communications addressed
to other departments which are sent through
the general-purpose pouch under the
responsibility of the Administrative
Department, Manila. The original shall be
properly marked for the Communications
Center while the duplicate shall be returned
to the sending Regional Clearing Unit with
the acknowledgment of the personnel incharge of opening the pouch in the
Communications Center.
(i) All clearing pouches arriving late in
the afternoon and in the evening may be
picked up from the airport in the morning
of the following day for delivery to the
drawee bank at 9:00 A.M. clearing session.
For security reasons, those arriving on Friday
night shall be picked up on Saturday
morning.
c. Treasury warrants. Types A and B
treasury warrants in Manila and in areas
served by the BSP Regional Clearing Offices
are governed by the following rules issued
by the National Treasurer:
(1) Effectivity. Types A and B
treasury warrants shall be accepted as
clearing items for regional clearing in areas
served by the BSP Regional Clearing Offices.
The branches or agencies of banks may
avail of this facility of the BSP by following
the procedures prescribed hereunder. These
treasury warrants shall be carried in the BSP
pouches from their regional offices to
Manila.
(2) Treatment of Types A and B
treasury warrants. Types A and B
treasury warrants with circular holes already
punched at the designated field by the bank
branches or agencies in accordance with
Treasury Circular dated 7 July 1969 shall
be placed in separate sealed envelopes or
packages, together with their respective runup tapes. The outside of the envelopes must
clearly indicate the type of treasury warrants
contained therein, the number of pieces, and
the total amount per tape. When the pouch
is received in Manila, these envelopes or
packages shall be turned over by the BSP
unopened to the representative of the
sending banks Manila office. The Manila
office of a bank shall gather all treasury
warrants it receives from its various branches
and agencies in a single day, and submit
them to the Bureau of Treasury for special
clearing on the next day. The treasury
warrants must be endorsed by the Manila
office, stating, among other things, the date
of clearing and that they are being presented
for special clearing.
These treasury warrants, as well as those
paid at the main offices and suburban
branches or agencies of banks shall be
presented to the Bureau of Treasury by the
banks concerned between the hours of 8:00
A.M. and 10:00 A.M. during banking days,
supported by run-up tapes and the usual
clearing receipt. The special clearing receipt
may be cleared on the same day through the
BSP Clearing House and shall be accounted
as debit against the demand of the National
Treasurer.
(3) Period within which treasury
warrants may be dishonored. The Bureau
of Treasury may dishonor a Type B
treasury warrant found defective within (2)
working days, while Type A treasury
warrants may be dishonored within sixty (60)
working days. In both cases, the period shall
be reckoned from the date the special
clearing receipt is coursed through the BSP.
The foregoing time limit will not apply
to treasury warrants found to have been paid
to the wrong party, tampered, and otherwise
tainted with fraud.
(4) Dishonored, miscleared and other
returnable items. These items will be
returned directly to the presenting bank. The
accepting bank shall issue the corresponding
APP. 28
05.12.31
credit ticket in favor of the Bureau of

Treasury, which ticket shall be cleared by
the Bureau of Treasury through the BSP.
If the bank to which a treasury warrant
is dishonored, refuses to accept or
recognise the action taken by the Bureau
of Treasury for a valid reason, the bank
may return the controversial items, or
evidences thereof, directly to the National
Treasurer, together with required run-up
tapes and a concise but comprehensive
statement of such reason. The return must
be made not later than 10:00 A.M. on the
next banking day, otherwise the member
bank shall be deemed to have accepted
and recognized the validity of the returned
item, and it is therefore, left without
further recourse. The Bureau of Treasury
shall issue the corresponding credit ticket
for those returned items accepted , and
the same shall be taken up in the manner
set forth above.
(5) Compliance. Banks participating in
the Bureau of Treasury special clearing
operations bind themselves to conform,
without reservation, to the regulations
promulgated herein, or which may
henceforth be promulgated relative to special
clearing operations. Any bank has the option
to present their paid treasury warrants to the
National Treasurer for collection.
(6) Bangko Sentral responsibility. Any
treasury warrant lost or pilfered from the BSP
pouch shall be the responsibility of the
sending bank, and such responsibility ends
only after the National Treasurer has taken
physical possession of the treasury warrants.
Lost or pilfered treasury warrants must be
reported to the National Treasurer in
accordance with Treasury Memorandum
Circular No. 13-69 dated 01 October 1969.
d. Handling of checks drawn against outof-town accounts. The following regulations
shall govern the handling of checks drawn
against demand deposits maintained in outof-town banks:
(1) The bank which accepted for

deposit/collection a check drawn against a
demand deposit maintained in an out-oftown bank must send the same for collection
within twenty-four (24) hours (non-regular
banking days excluded) counted from the
time of its receipt. Sending the check for
collection means sending it directly to the
drawee bank or thru the collecting banks
branch, agency or extension office/
correspondent bank/ collecting, agent in or
near the locality to the drawee bank by
registered mail with return receipt or by
other equivalent means. Checks drawn
against drawee banks located in places
where the BSP maintains clearing offices
shall be cleared directly with the said
clearing offices.
(2) Upon receipt of a check from the
collecting bank, the drawee bank carrying
the demand deposit against which the check
is drawn (if cleared through means other
than the clearing facilities of the BSP), must
indicate the date and time of receipt of the
check on the registered mail return receipt,
if the item is sent by registered mail, or on
the duplicate copy of the collecting banks
letter of instruction, if the item is sent
through means other than by registered mail.
(3) The drawee bank should maintain
a register of all checks received for settlement
which should be separate and distinct from
the register of incoming mails or messages.
This register must indicate in chronological
order all checks received for settlement with
information such as, but not limited to, the
date and time the check was received, the
name and address of the collecting bank,
the current account number against which
check is drawn, the date and amount of the
check and the date the proceeds thereof were
remitted or the date the check was returned,
as the case may be.
(4) The drawee bank or office carrying
the demand deposit against which the check
is drawn must dispose of such item within
twenty-four (24) hours (non-regular banking
APP. 28
05.12.31
days of the drawee bank excluded) counted

from the time it received the check.
Disposing of such item means remitting the
proceeds to the collecting bank if the check is
honored, or returning the check with the
reason for the return, in the event of dishonor.
(5) The date of disposition of the check
shall be determined by the date of mailing
of the instrument of payment, say demand
draft, or date or dispatch of telegraphic

transfer, if the check is honored, or by the
date of mailing of the return slip attached to
the item, if it is dishonored.
(6) All checks received for payment but
not acted upon at the end of the day must
be recorded by the drawee bank on the same
day as part of its contingent account Inward
Bills for Collection.
APP. 28a
05.12.31
CLEARING OPERATIONS BETWEEN REGIONAL CLEARING CENTER

AND THE MANILA CLEARING CENTER
(Tarlac, Tarlac Used as Sample)
(Appendix to Subsec. X603)
Exchanges of clearing items among
branches of commercial and thrift banks in
Tarlac, Tarlac, will be conducted at 4:00
P.M. on each business day as well as on all
local holidays in the premises of the Tarlac
Regional Clearing Unit in accordance with
the clearing regulations embodied in
Appendix 28.
Simultaneously, On Tarlac checks and
On Manila checks may be presented for
clearing through the Manila Clearing Office
and the Tarlac Regional Clearing Unit,
respectively.
In Manila
4:00 P.M. - Manila banks deliver On
Tarlac
checks
and
dishonored On Manila
checks picked up at 4:00 P.M.
of the previous day.
- Manila banks pick-up On
Manila checks and returned
On Tarlac checks delivered
at 4:00 P.M. at Tarlac the
previous day.
In Tarlac
4:00 P.M. - Tarlac banks deliver On
Manila
checks
and
dishonored On Tarlac
checks picked up at 4:00 P.M.
of the previous day.
- Tarlac banks pick up On
Tarlac checks and returned
On Manila checks
delivered at 4:00 P.M. at
Manila the previous day.
If not returned on schedule, it is understood

that On Tarlac and On Manila checks
delivered to the Manila Clearing Office and
Tarlac Regional Clearing Unit, respectively,
will be considered good after 4:00 P.M.
on the third business day following the date
of delivery.
Items for Clearing
Items for clearing shall consist of checks
and documents payable on demand and
drawn against banks in Manila and its suburbs
(Quezon City, Pasay City, Kalookan City, San
Juan City, Mandaluyong City, Makati City,
Paraaque City, Navotas City, Malabon City,
Marikina City and Pasig City) on one hand
and banks in Tarlac, Tarlac on the other.
Settlement of Balances
Clearing balances of participating banks
in Tarlac, Tarlac, shall be debited or credited,
as the case may be, to the clearing accounts
of their respective head offices with the
Bangko Sentral in the afternoon of the date
of clearing.
Miscellaneous
Out-of-town checks shall be sealed in
special brown envelope measuring 7 x 11
with the destination To Tarlac or To
Manila, as the case may be, properly
stamped in bold letters of not less than one
(1) inch and three (3) orange stripes, 1/1
wide on the right edge.
Banks shall microfilm all out-of-town
checks.
APP. 29
05.12.31
PROCEDURES ON COLLECTION OF FINES FROM BANKS

For uniform implementation of the

regulations on collection of fines from
banks, the following procedures shall be
observed:
1. The department or office imposing
the fine shall furnish the Comptrollership
Department a copy of its notice to the bank
for the fines imposed indicating therein the
date said notice was received by the bank.
This shall serve as basis for entries to
Accounts Receivable and debit against the
banks demand deposit account after the
lapse of fifteen (15) days.
2. In the case of fines which the
department/office concerned requests the
Comptrollership Department to bill the
bank, the date the bill sent by the
Comptrollership Department is received by
the bank shall serve as basis for entries to

Accounts Receivable and debit against the
banks demand deposit account after the
lapse of fifteen (15) days.
3. If the fine is not paid voluntarily
within the 15-day period, the
Comptrollership Department shall debit the
demand deposit account of the bank,
provided, the balance of said demand
deposit account is sufficient to cover the
fines due. Fines that cannot be debited
against the banks demand deposit account
due to insufficiency of balance shall be
reported by the Comptrollership
Department to the department/office
concerned which shall then recommend the
appropriate sanctions against the bank, its
directors and/or officers.
APP. 30
05.12.31
PRESCRIBED FORMAT
MEMORANDUM OF UNDERSTANDING
(Name of Bank)
and the Bangko Sentral ng Pilipinas (BSP) wish
to protect the interest of the depositors, creditors, shareholders and the public in general and
toward that end, wish the Bank to operate safely and soundly and in accordance with all
applicable banking laws, rules and regulations.
In consideration of the above premise, the BSP, through its authorized deputies, and
the Bank, by and through its duly elected Board of Directors (Board), do hereby agree
that the Bank shall at all times operate in compliance with the articles of this Memorandum
of Understanding.
ACTION PLAN
Within thirty (30) days, the Board shall adopt and implement a capital restoration plan
detailing the Boards perception of what needs to be done to improve the Banks capital
position, specifying how the Board will implement the plan and setting forth a timetable for
the implementation of the plan.
Upon completion of the plan, the Bank shall submit the plan to the appropriate
supervising and examining department of the BSP for review. The Board shall establish
appropriate procedures for the implementation of the plan.
In the event the BSP recommends changes to the action plan, the Board shall
immediately incorporate those changes into the plan.
The plan shall be implemented pursuant to the time frames set forth within the plan
unless events dictate modifications to the plan are required. Where the Board considers
modifications appropriate, those modifications shall be submitted to the BSP for approval.
CAPITAL PROGRAM
The Bank shall achieve by
(date)
and thereafter maintain the following
capital levels:
a. At least equal to ten percent (10%) of its risk assets;
b. At least equal to the following amounts (in million pesos):
Existing
Requirements
Expanded KBs
Non-Expanded KBs
3,500
1,625
Compliance Period
12/24/98 12/31/99 12/31/2000
4,500
2,000
4,950
2,400
5,400
2,800
APP. 30
05.12.31
Existing
Compliance Period
Requirements 12/24/98
12/31/99 12/31/2000
Thrift Banks
Within Metro Manila
Outside Metro Manila
Rural Banks
Within Metro Manila
Cities of Cebu & Davao
1st/2nd/3rd class cities &
1st class municipalities
4th/5th/6th class cities & 2nd/
3rd/4th class municipalities
5th/6th class municipalities
200
40
250
40
325
52
400
64
20
10
20
10
26
13
32
16
6.5
3
2
3
2
3.9
2.6
4.8
3.2
Within thirty (30) days, the Board shall develop a three (3)-year capital build-up program.
The program shall include, as may be necessary:
(a) Specific plans for the maintenance of adequate capital that should not be less than
the requirements stated above;
(b) Projections for growth and capital requirements based upon a detailed analysis of
the Banks assets, liabilities, earnings, fixed assets and off-balance sheet activities;
(c) Projections of sources and timing of additional capital to meet the Banks current
and future needs;
(d) The primary source(s) from which the Bank will strengthen its capital structure to
meet the Banks needs; and
(e) Contingency plans that identify alternative methods should the primary source(s) be
not available.
COMPLIANCE/PROGRESS REPORTS
The Compliance Officer shall be responsible for monitoring and coordinating the Banks
adherence to the provisions of this Memorandum of Understanding. The Compliance Officer
shall submit a written progress report to the Board on a (Monthly/Quarterly) basis setting
forth in detail:
a. Actions taken to comply with each article of this Memorandum; and
b. The results of those actions
The Board shall submit (monthly/quarterly) progress reports to the appropriate
supervising and examining department of the BSP containing the abovementioned details.
FORMAL AGREEMENT
Although the Board has by this Memorandum of Understanding consented to submit
certain proposed actions and programs for the review and approval of the BSP, the
Board has the ultimate responsibility for proper and sound management of the Bank.
It is expressly and clearly understood that if, at any time, BSP deems it appropriate in
fulfilling the responsibilities placed upon it by laws of the Republic of the Philippines to
APP. 30
05.12.31
undertake any action affecting the Bank, nothing in this Memorandum of Understanding
shall in any way inhibit, estop, bar, or otherwise prevent it from so doing.
Any time requirements specified in this Memorandum of Understanding shall begin from
the effective date of this Memorandum. Such time requirements may be extended by the BSP
for good cause upon written application of the Board.
This Memorandum of Understanding shall be effective upon execution by the parties
hereto, and its provisions shall continue in full force and effect until such time as they shall
be amended by mutual consent of the parties to this Memorandum or excepted, waived,
terminated by BSP.
IN TESTIMONY WHEREOF, the undersigned has hereunto set his hand this_______
day of __________ at the City of _______________, Philippines.
BANGKO SENTRAL NG PILIPINAS
_________________________
Authorized Deputy
________________________
Deputy Governor-SES
BANK
__________________________
President
_________________________
Chairman of the Board
_________________________
( Witness )
_________________________
( Witness )
APP. 31
06.12.31
IMPLEMENTING GUIDELINES FOR THRIFT BANKS AUTHORIZED TO ACCEPT

DEMAND DEPOSITS AND RURAL BANKS WHO ARE MEMBERS OF THE
PHILIPPINE CLEARING HOUSE CORPORATION
(Appendix to Items "c" and "d" of Sections 2205 and 3205)
Section 1. Requirements for Thrift
Banks Migrating from NOW and
Conduit Arrangements and Rural Banks
Who are Members of the Philippine
Clearing House Corporation:
a. TBs migrating from NOW and
conduit arrangements and RB members
of the PCHC shall secure a Bank Routing
Symbol Transit Number (BRSTN) with
PCHC.
b. TBs and RB members shall secure
prior authority to participate directly in
the PCHC and BSP clearing operations
with the appropriate department of the
SES.
Sec. 2. Requirements for Thrift Banks
and Rural Banks Who are Members of
PCHC
TBs/RBs participating directly in the
clearing operations of PCHC and BSP
Regional Clearing Centers shall apply for
collateralized overnight clearing line
under Items "c" and "d" of Sections 2205
and 3205 of the Manual. Said banks shall
enter into an agreement with the BSP
conforming to these guidelines and they
shall in turn enter into similar agreements
with their clients.
Sec. 3. Application for Overnight
Clearing Line
a. TBs and RBs authorized to
participate directly in the clearing
operations of PCHC shall file their
application for an Overnight Clearing
Line with the appropriate department of
the SES supported by documents
indicated below under Items b.1, b.2
and b.3.
b. The applicant bank shall furnish the

DLC a copy of the application, together
with the following:
(1) A duly notarized secretarys
certificate together with a resolution
of the board of directors of the bank
authorizing the bank to apply for a loan
line and designating the officers
authorized to negotiate, sign and execute
all accessory documents for the loan
line;
(2) Duly signed and notarized
Overnight Clearing Line Agreement
between the bank and the BSP;
(3) Duly accomplished Tripartite
Memorandum of Agreement between and
among the BSP, the applicant-bank and the
PCHC;
(4) Notarized Surety Agreement
executed by the controlling stockholders
(owning more than fifty percent (50%)
of the voting stocks) and every person
or group of persons whose stockholdings
are sufficient to elect at least one director
obligating themselves jointly and
severally with the bank to pay promptly
on maturity or when due the BSP, its
successors or assigns, all promissory
notes covering availment against the
loan line; and
(5) Collateral documents to cover the
loan line.
c. The loan line shall be secured by
first class collaterals that refer to the
assets and securities which have
relatively stable and clearly definable
value and/or greater liquidity and free
from lien and encumbrances, to the
extent of their applicable loan values,
as follows:
APP. 31
06.12.31
Acceptable Collaterals
c.1.a Government
securities
c.1.b Commercial Credits
(AAA)
Loan Value
80% of the current
market value of the
securities
Unencumbered real
estate properties in
the name of the
bank
70% of the appraised

value of the land and
insured improvements
determined by a
licensed
and
independent appraiser
acceptable to the BSP in
accordance with BSPs
terms of reference.
c.3
Mortgage credits

value of the property
securing the loan
evidenced
by
negotiable instruments
as determined by a
licensed
and
independent appraiser
acceptable to the BSP
in accordance with
BSPs
terms
of
reference or 80% of
the
outstanding
balance of such loan
whichever is lower.
c.4
Holdout on foreign 80% of current market

currency deposits value
with the BSP
c.2
d. The DLC shall inform the

appropriate department of the SES of the total
loan value of eligible collaterals and the
appropriate department of the SES upon
finding the application and any amendments
thereto to be in order, shall recommend to
the Monetary Board the approval of the
banks loan line.
e. The loan line, once approved, can
be amended at the instance of the
applicant bank only once every twelve
(12) months. The loan line shall be equal
to at least five (5%) percent of the banks
deposit liabilities as at end of prior month.
shall recommend to the Monetary Board
any request for amendment of the line.
f. The bank shall be allowed the

flexibility of changing or substituting
collateral, specially matured government
securities. The DLC shall act on such
request, provided it will not result in an
amendment of the approved overnight
clearing line.
Sec. 4. Availments Against the Approved
Loan Line
a. The electronic notice of application
of the loan line to settle net clearing losses
from the BSP Comptrollership Department
shall constitute availment. Upon receipt of
the electronic notice of availment, DLC shall
immediately post the transaction to the
banks loan ledger.
b. Each availment shall be fully paid
through an automatic debit to the demand
deposit account of the bank with BSP on
the next clearing day, without need of
demand.
c. The availments against the
approved loan line shall bear interest at the
91-day Treasury Bill rate of the last auction
immediately preceding the availments.
d. Availments that remain unpaid on
the next clearing day shall be subject to three
percent (3%) per month in liquidated
damages.
e. The loan value of the collaterals
securing the loan line shall be
correspondingly reduced under any of the
(1) There are collections received on
the mortgage credits;
(2) The mortgage credits become past
due;
(3) The property mortgaged was
sold; and
(4) The collateral assets fall short of
the definition of first class collateral.
f. The bank shall duly inform DLC
of any collections on mortgaged credits
or sale of assets mortgaged and ensure
that adequate records on collections and
sales made by the branches are
maintained in its head office.
APP. 31
06.12.31
Sec. 5. Definition of Value or Settlement

Date. Value or Settlement Date shall refer
to date when the checks presented for
clearing are given value. For local clearing,
the Value or Settlement Date shall be the next
clearing day when dishonored checks are
returned within the reglementary period,
reckoned after the date of presentation in the
integrated Manila clearing area of PCHC and
in all BSP regional clearing centers. For interregional clearing items, outward Manila
clearing items and to Manila clearing items,
the Value or Settlement Date will be defined
in clearing circulars to be issued by BSP.
Unless otherwise modified in
subsequent clearing circulars, value or
settlement date for clearing items shall be
as stated in the following schedule:
Session
Returned Items
Value/Settlement Date
On date of return
Outward Items
Local Clearing
Next clearing day
Inter-Regional Clearing
As defined in Clearing
Circular Letter for
nationwide inter-regional
clearing
Out-of-town and Manila

Outward Regional
As defined in Clearing
Circular Letter fixing
Outward Regional t h e
number of float days for
exchanges between
Manila and the BSP
Regional Clearing
Centers
Sec. 6. Procedures for Clearing and

Settling Clearing Results
a. Regular exchanges shall be
conducted daily for local, inter-regional and
out-of-town and outward Manila on regular
banking days and local holidays.
b. Returned Items shall be contained
in special red envelopes and presented
separately in the clearing statements.
c. The net clearing demands of
banks shall be debited/credited to the
demand deposit accounts on value date

as defined in Sec. 5 above.
d. The participating banks in BSP
Regional Clearing Centers shall prepare their
electronic clearing statements following the
procedures contained in the BSP Clearing
Operations User Manual for Participating
Banks.
e. Manila outward regional clearing
demands bound for BSP Regional Clearing
Centers and On Manila outward clearing
demands shall be presented to PCHC in
accordance with the existing PCHC
prescribed clearing rules.
f. BSP Regional Clearing Centers shall
consolidate clearing statements and transmit
back electronically to the participating
banks the consolidated clearing statement
for each bank. The hard copy of the
consolidated clearing statements signed
by responsible officials of the participating
banks shall be submitted to the BSP Regional
Clearing Center on the next clearing day.
g. Participating banks shall present
the demand items in sealed envelopes,
segregating the demand items according
to regional clearing centers. Each
envelope shall show the number and the
total value of the checks presented. The
duly authorized settling representatives of
the participating banks shall sign on the
BSP control copy of the consolidated
clearing statements to document the
exchanges.
Sec. 7. Procedures for Settling Losses
Clearing losses shall be settled to the
extent of the combined amount of the
demand deposit balance and additional
funds obtained from the following credit
sources of the participating bank:
a. Interbank borrowing through IBCL
- MIPS;
b. Interbank borrowing from BSP
Treasury Department; and
c. Collateralized overnight clearing
line granted by the BSP.
APP. 31
06.12.31
Sec. 8. Procedures for Unwinding

Clearing Transactions
a. Procedures for unwinding clearing
transactions shall apply to all inward
items, other than Returned Items, and to
local exchanges only.
b. The aggregate values of all inward
items of all clearing centers, including On
Manila inward clearing demands presented
to PCHC, shall be ranked from highest to
lowest. The unsettled net clearing losses
shall be eliminated by unwinding the inward
items starting from the clearing centers,
including PCHC, with highest aggregate
value.
c. In case the aggregate value of the
inward items for a given clearing center,
except PCHC, exceeds the unsettled net
clearing losses, the total inward items for
that clearing center shall be the subject of
unwinding.
d. In the case of checks cleared through
PCHC, the inward clearing items shall be
unwound to the extent of the unsettled net
clearing loss. The selection of the specific
demand items to be covered by unwinding
shall be based on PCHC rules.
e. Checks which are the subject of the

unwound clearing transactions shall be
returned to the presenting banks not later
than 9:00 oclock A.M. of the following
clearing day.
Sec. 9. Identification of Checks Issued
Under Sec. 2205/3205. Participating bank
shall print or stamp on the face of the blank
checks issued to current account depositors
the words issued subject to Sec. 2205/3205
of the MOR.
Sec. 10. Exemption from Liability. The
participating bank and PCHC shall have no
cause of action or right of relief whatsoever
against the BSP in connection with or arising
out of any transaction under this Agreement.
Moreover, BSP shall not be held responsible
for any loss or damage to the Bank, PCHC
or any third party arising out of or by reason
of this Agreement.
Sec. 11. Effectivity Date
The clearing operation guidelines shall
take effect on 15 September 1998.
APP. 32
05.12.31
ILLUSTRATIONS WHEN A DIRECTOR, OFFICER AND STOCKHOLDER (DOS)

SHALL WAIVE THE SECRECY OF DEPOSITS
(Appendix to Subsec. X338.1b)
A.
When the loan is obtained from a bank that is a subsidiary of a holding company of
which both the borrowers bank and the lending bank are subsidiaries.
X
Holding Company
Y Bank
(Subsidiary)
Z Bank
(Subsidiary)
Lending Bank
Bank of DOS who

borrows from Y Bank
Thus, if Mr. A, who is a director of Z Bank borrows from Y Bank, he should waive the
secrecy of deposits of whatever nature in all banks in the Philippines since both Y Bank and
Z bank are subsidiaries of X Holding Company.
APP. 32
05.12.31
B. When the loan is from a bank in which a controlling proportion of the shares is owned
by the same interest that owns a controlling proportion of the shares of his bank.
Lending banks Equity Structure
B ank Y
O w n er B
49%
O w n er A
51%
Borrowers bank Equity Structure
Bank Z
Owner B
49%
Owner A
51%
In illustration above, the controlling shares in both banks belong to the same interest,
Owner A.
APP. 33
08.12.31
CLASSIFICATION, ACCOUNTING PROCEDURES, VALUATION AND

SALES AND TRANSFERS OF INVESTMENTS IN DEBT SECURITIES
AND MARKETABLE EQUITY SECURITIES
Section 1. Statement of Policy. It is the
policy of the BSP to promote full
transparency of the financial statements of
banks and other supervised institutions in
order to strengthen market discipline,
encourage sound risk management
practices, and stimulate the domestic
capital market. Towards these ends, the
BSP desires to align local financial
accounting standards with international
accounting standards as prescribed by the
International Accounting Standards Board
(IASB) to the greatest extent possible.
Sec. 2. Scope. This Appendix covers
accounting for investments in debt and
equity securities except:
a. those that are part of hedging
relationship;
b. those that are hybrid financial
instruments;
c. those financial liabilities that are
held for trading;
d. those financial assets and financial
liabilities which, upon initial recognition,
are designated by the FIs as at fair value
through profit or loss; and
e. those that are classified as loans and
receivables.
It also does not include accounting for
derivatives and non-derivative financial
instruments other than debt and equity
securities. The foregoing exceptions and
exclusions shall be covered by separate
regulations.
Sec. 3. Investments in Debt and Equity
Securities. Depending on the intent,
investments in debt and equity securities
shall be classified into one (1) of four (4)
categories and accounted for as follows:1
a. Held to Maturity (HTM) Securities

- These are debt securities with fixed or
determinable payments and fixed maturity
that an FI has the positive intention and
ability to hold to maturity other than:
(1) those that meet the definition of
Securities at Fair Value Through Profit or
Loss; and
(2) those that the FI designates as
Available-for-Sale Securities .
An FI shall not classify any debt security
as HTM if the FI has, during the current
financial year or during the two (2)
preceding financial years, sold or
reclassified more than an insignificant
amount of HTM investments before
maturity (more than insignificant in relation
to the total amount of HTM investments)
other than sales or reclassifications that:
(a) are so close to maturity or the
securitys call date (i.e., less than three (3)
months before maturity) that changes in the
market rate of interest would not have a
significant effect on the securitys fair value;
(b) occur after the FI has substantially
collected all [i.e., at least eighty-five percent
(85%)] of the securitys original principal
through scheduled payments or
prepayments; or
(c) are attributable to an isolated event
that is beyond the FIs control, is non-recurring
and could not have been reasonably
anticipated by the FI.
For this purpose, the phrase more than
an insignificant amount refers to sales or
reclassification of one percent (1%) or more
of the outstanding balance of the HTM
portfolio: Provided, however, That sales or
reclassifications of less than one percent
(1%) shall be evaluated on case-to-case
basis.
Reclassification allowed until 30 Nov. 2005 as per MAB dated 23 Nov. 2005
APP. 33
08.12.31
Sales or reclassifications before maturity

that do not meet any of the conditions
prescribed in this Appendix shall require
the entire HTM portfolio to be reclassified
to Available-for-Sale. Further, the FI shall
be prohibited from using the HTM account
during the reporting year of the date of sales
or reclassifications and for the succeeding
two (2) full financial years. Failure to
reclassify the HTM portfolio to Availablefor-Sale on the date of sales or
reclassifications, shall subject the FI and
concerned officers to penalties and
sanctions provided under Item "c" of
X388.5. This provision shall be applied
prospectively, i.e., on prohibited sales or
reclassifications occurring on 13 March
2005 (effectivity date of Cir. 476 dated 16
February 2005) and thereafter.
Securities held in compliance with BSP
regulations, e.g., securities held as liquidity
reserves and for the faithful performance
of trust duties, may be classified either as
HTM, Securities Held-for-Trading (HFT) or
Available-for-Sale: Provided, That the
provision of Item (4) of paragraph 2 of
Section 3.a.1 shall not apply to sales or
reclassifications of the said securities
booked under HTM.
a.1. Positive intention and ability to hold
investments in HTM securities to maturity
An FI does not have a positive intention
to hold to maturity an HTM security if:
(a) the FI intends to hold the security
for an undefined period;
(b) the FI stands ready to sell the
security (other than if a situation arises that
is non-recurring and could not have been
reasonably anticipated by the FI) in
response to changes in market interest rates
or risks, liquidity needs, changes in the
availability of and the yield on alternative
investments, changes in financing sources and
terms or changes in foreign currency risk; or
(c) the issuer has a right to settle the
security at an amount significantly below
its amortized cost.
Sales before maturity could satisfy the

condition of HTM classification and
therefore need not raise a question about
the FIs intention to hold other HTM
securities to maturity if they are attributable
to any of the following:
(i) A significant deterioration in the
issuers creditworthiness; for example, a
sale following a downgrade in a credit
rating by an external rating agency would
not necessarily raise a question about the
FIs intention to hold other investments to
maturity if the downgrade provides
evidence of a significant deterioration in
the issuers creditworthiness judged by
reference to the credit rating at initial
recognition. Similarly, if an FI uses internal
ratings for assessing exposures, changes in
those internal ratings may help to identify
issuers for which there has been a
significant
deterioration
in
creditworthiness, provided the FIs
approach to assigning internal ratings and
changes in those ratings give a consistent,
reliable and objective measure of the credit
quality of the issuers. If there is evidence
that an instrument is impaired, the
deterioration in creditworthiness is often
regarded as significant;
(ii) A change in tax law that eliminates
or significantly reduces the tax-exempt
status of interest on the HTM security (but
not a change in tax law that revises the
marginal tax rates applicable to interest
income);
(iii) A major business combination or
major disposition (such as sale of a
segment) that necessitates the sale or
transfer of HTM securities to maintain the
FIs existing interest rate risk position or
credit risk policy: Provided, That the sale
or transfer of HTM security shall be done
only once and within a period of six (6)
months from the date of the business
combination or major disposition:
Provided, further, That prior BSP approval
is required for sales or transfers occurring
APP. 33
08.12.31
after the prescribed six (6)-month time

frame. In this case, FIs shall submit to the
appropriate department of the SES, a plan
stating the reason for the extension and the
proposed schedule for the disposition of the
HTM security;
(iv) A change in statutory or regulatory
requirements significantly modifying either
what constitutes a permissible investment
or the maximum level of particular types
of investments, thereby causing an FI to
dispose of an HTM security;
(v) A significant increase in the
industrys regulatory capital requirements
that causes the FI to downsize by selling
HTM securities; or
(vi) A significant increase in the risk
weights of HTM securities used for
regulatory risk-based capital purposes.
An FI does not have a demonstrated
ability to hold to maturity an investment in
HTM security if:
(aa) it does not have the financial
resources available to continue to finance
the investment until maturity; or
(bb) it is subject to an existing legal or
other constraint that could frustrate its
intention to hold the security to maturity.
Sales before maturity due to events that
are non-recurring and could not have been
reasonably anticipated by the FI such as a
run on a bank, likewise satisfy the condition
of HTM classification and therefore need
not raise a question about the FIs intention
and ability to hold other HTM investments
to maturity.
An FI assesses its intention and ability
to hold its investment in HTM securities to
maturity not only when those securities are
initially recognized, but also at each time
that the FI prepares its financial statements.
a.2. HTM securities shall be measured
upon initial recognition at their fair value
plus transaction costs that are directly
attributable to the acquisition of the securities.
For this purpose, transactions costs
include fees and commissions paid to
agents (including employees acting as

selling agents), advisers, brokers and
dealers, levies by regulatory agencies and
securities exchanges, and transfer taxes and
duties. Transaction costs do not include
debt premiums or discounts, financing costs
or internal administrative or holding costs.
After initial recognition, an FI shall
measure HTM securities at their amortized
cost using the effective interest method.
For this purpose, the effective interest
method is a method of calculating the
amortized cost of a security (or group of
securities) and of allocating the interest
income over the relevant period using the
effective interest rate. The effective interest
rate shall refer to the rate that exactly
discounts the estimated future cash receipts
through the expected life of the security or
when appropriate, a shorter period to the
net carrying amount of the security. When
calculating the effective interest rate, an FI
shall estimate cash flows considering all
contractual terms of the security (for
example, prepayment, call and similar
options) but shall not consider future credit
losses. The calculation includes all fees and
points paid to the other party to the contract
that are an integral part of the effective
interest rate, transaction costs, and all other
premiums or discounts. There is a
presumption that the cash flows and the
expected life of a group of similar securities
can be estimated reliably. However, in
those rare cases when it is not possible to
estimate reliably the cash flows or the
expected life of a security (or group of
securities), the FI shall use the contractual
cash flows over the full contractual terms
of the security.
A gain or loss arising from the change
in the fair value of the HTM security shall
be recognized in profit or loss when the
security is derecognized or impaired, and
through the amortization process.
An FI shall assess at each time it
prepares its financial statements whether
APP. 33
08.12.31
there is any objective evidence that an

HTM security is impaired.
If there is objective evidence that an
impairment loss on HTM securities has
been incurred, the amount of the loss is
measured as the difference between the
securitys carrying amount and the present
value of estimated future cash flows
(excluding future credit losses that have not
been incurred) discounted at the securitys
original effective interest rate (i.e., the
effective interest rate computed at initial
recognition). The carrying amount of the
security shall be reduced through the use
of an allowance account. The amount of the
loss shall be recognized in profit or loss.
As a practical expedient, a creditor may
measure impairment of HTM securities on
the basis of an instruments fair value using
an observable market price.
An FI first assesses whether objective
evidence of impairment exists individually
for HTM securities that are individually
significant, and individually or collectively
for HTM securities that are not individually
significant. If an entity determines that no
objective evidence of impairment exists for
an individually assessed HTM security,
whether significant or not, it includes the
asset in a group of HTM securities with
similar credit risk characteristics and
collectively assesses them for impairment.
HTM securities that are individually
assessed for impairment and for which an
impairment loss is or continues to be
recognized are not included in a collective
assessment of impairment.
If, in a subsequent period, the amount
of the impairment loss decreases and the
decrease can be related objectively to an
event occurring after the impairment was
recognized (such as an improvement in the
debtors credit rating), the previously
recognized impairment loss shall be
reversed by adjusting the allowance
account. The reversal shall not result in a
carrying amount of the security that exceeds
what the amortized cost would have been

had the impairment not been recognized
at the date the impairment is reversed. The
amount of the reversal shall be recognized
in profit or loss.
b. Securities at Fair Value through
Profit or Loss These consist initially of
HFT securities. HFT are debt and equity
securities that are:
(1) acquired principally for the purpose
of selling or repurchasing them in the near
term; or
(2) part of a portfolio of identified
securities that are managed together and
for which there is evidence of a recent
actual pattern of short-term profit-taking.
For this purpose, an FI shall adopt its
own definition of short-term which shall be
within a twelve (12)-month period. Said
definition which shall be included in its
manual of operations, shall be applied and
used consistently.
b.1 HFT securities shall be measured
upon initial recognition at their fair value.
Transaction costs incurred at the acquisition
of HFT securities shall be recognized
directly in profit or loss. After initial
recognition, an FI shall measure HFT
securities at their fair values without any
deduction for transaction costs that it may
incur on sale or other disposal. A gain or
loss arising from a change in the fair value
of HFT securities shall be recognized in
profit or loss under the account Trading
Gain/(Loss).
c. Available-for-Sale Securities.
These are debt or equity securities that are
designated as Available-for-Sale or are not
classified/designated as (a) HTM, (b)
Securities at Fair Value through Profit or
Loss, or (d) Investment in Non-Marketable
Equity Securities (INMES).
c.1 Available-for-Sale securities shall
be measured upon initial recognition at
their fair value plus transaction costs that
are directly attributable to the acquisition
of the securities. After initial recognition,
APP. 33
08.12.31
an FI shall measure Available-for-Sale

securities at their fair values, without any
deduction for transaction costs it may incur
on sale or other disposal. A gain or loss
arising from a change in the fair value of
an Available-for-Sale security shall be
recognized directly in equity under the
account Net Unrealized Gains/(Losses) on
Securities Available-for-Sale and reflected
in the statement of changes in equity,
except for impairment losses and foreign
exchange gains and losses, until the
security is derecognized, at which time the
cumulative gain or loss previously
recognized in equity shall be recognized in
profit or loss. However, interest calculated
using the effective interest method is
recognized in profit or loss. Dividends on
an Available-for-Sale equity security are
recognized in profit or loss when the FIs
right to receive payment is established.
For the purpose of recognizing foreign
exchange gains and losses on a monetary
Available-for-Sale security that is
denominated in a foreign currency, it shall
be treated as if it were carried at amortized
cost in the foreign currency. Accordingly,
for such an Available-for-Sale security,
exchange differences resulting from
changes in amortized cost are recognized
in profit or loss and other changes in
carrying amount are recognized directly
in equity. For Available-for-Sale securities
that are not monetary items (for example,
equity instruments), the gain or loss that is
recognized directly in equity includes any
related foreign exchange component.
An FI shall assess at each time it
prepares its financial statements whether
there is any objective evidence that an
Available-for-Sale security is impaired.
When a decline in the fair value of an
Available-for-Sale security has been
recognized directly in equity and there is
objective evidence that the asset is
impaired, the cumulative loss that had been
recognized directly in equity shall be
removed from equity and recognized in

profit or loss even though the security has
not been derecognized.
The amount of the cumulative loss that
is removed from equity and recognized in
profit or loss shall be the difference
between the acquisition cost (net of any
principal repayment and amortization) and
current fair value, less any impairment loss
on that security previously recognized in
profit or loss.
Impairment losses recognized in profit
or loss for an investment in an equity
instrument classified as Available-for-Sale
shall not be reversed through profit or loss.
If, in a subsequent period, the fair
value of a debt instrument classified as
Available-for-Sale increases and the
increase can be objectively related to an
event occurring after the impairment loss
was recognized in profit or loss, the
impairment loss shall be reversed, with the
amount of the reversal recognized in profit
or loss.
c.2.Underwriting Accounts (UA) shall
be a sub-account under Available-for-Sale.
These are debt and equity securities
purchased which have remained unsold/
locked-in from underwriting ventures on
a firm basis. UA account is applicable only
to UBs and IHs.
d. INMES- These are equity
instruments that do not have a quoted
market price in an active market, and
whose fair value cannot be reliably
measured.
INMES shall be measured upon initial
recognition at its fair value plus transaction
costs that are directly attributable to the
acquisition of the security. After initial
recognition, an FI shall measure INMES at
cost. A gain or loss arising from the change
in fair value of the INMES shall be
recognized in profit or loss when the
security is derecognized or impaired.
An FI shall assess each time it prepares
its financial statements whether there is any
APP. 33
08.12.31
objective evidence that an INMES is

impaired.
If there is objective evidence that an
impairment loss has been incurred on an
INMES, the amount of impairment loss is
measured as the difference between the
carrying amount of the security and the
estimated future cash flows discounted at
the current market rate of return for a similar
financial instrument. Such impairment loss
shall not be reversed.
For Securities at Fair Value through
Profit or Loss and Available-for-Sale, an FI
is required to book the mark-to-market
valuation on a daily basis. However, an FI
may opt to book the mark-to-market
valuation every end of the month:
Provided, That an adequate mechanism is
in place to determine the daily fair values
of securities.
An FI shall recognize an investment in
debt or equity security on its balance sheet
when, and only when, the FI becomes a
party to the contractual provisions of the
financial instrument. A regular way
purchase or sale of financial assets shall be
recognized and derecognized, as
applicable using trade date accounting or
settlement date accounting. The method
used is applied consistently for all
purchases and sale of financial assets that
belong to the same category.
Section 4. Reclassifications1
a. An FI shall not reclassify a security
into or out of the Fair Value through Profit
Loss category while it is held.
b. If, as a result of a change in intention
or ability, it is no longer appropriate to
classify a debt security as HTM, it shall be
reclassified as Available-for-Sale and
remeasured at fair value, and the difference
between its carrying amount and fair value
shall be accounted for in accordance with
Section 3.c.1.
c. Whenever sales or reclassifications
of more than an insignificant amount of
HTM investments do not meet any of the

conditions in Section 3.a, any remaining
HTM investments shall be reclassified as
Available-for-Sale. On such reclassification,
the difference between the carrying
amount and fair value shall be accounted
for in accordance with Section 3.c.1.
d. If a reliable measure becomes
available for an INMES, it shall be
reclassified as Available-for-Sale and
remeasured at fair value, and the difference
between its carrying amount and the fair
value shall be accounted for in accordance
with Section 3.c.1.
e. If, as a result of a change in intention
or ability, or because the two (2) preceding
financial years referred to in Section 3.a have
passed, it becomes appropriate to carry the
debt security at amortized cost (i.e., HTM)
rather than at fair value (i.e, Available- forSale), the fair value carrying amount of the
security on that date becomes its new
amortized cost. Any previous gain or loss
on that debt security that has been
recognized directly in equity in
accordance with Section 3.c.1 shall be
amortized to profit or loss over the
remaining life of the HTM using the effective
interest method. Any difference between
the new amortized cost and maturity
amount shall also be amortized over the
remaining life of the security using the
effective interest method, similar to the
amortization of a premium and a discount. If
the security is subsequently impaired, any
gain or loss that has been recognized directly
in equity is recognized in profit or loss in
accordance with Section 3.c.1.
f. If, in the rare circumstance that a
reliable measure of fair value is no longer
available, it becomes appropriate to carry
the equity security at cost (i.e., INMES) rather
than at fair value (i.e., Available-for-Sale), the
fair value carrying amount of the security
on that date becomes its new cost. Any
previous gain or loss on that equity security
that has been recognized directly in equity
The guidelines governing the reclassification of financial assets between categories in accordance with the provisions of
the October 2008 amendments to PAS39 and PFRS7 are shown in Annex A.
1
APP. 33
08.12.31
in accordance with Section 3.c.1 shall

remain in equity until the security is sold
or otherwise disposed of, when it shall be
recognized in profit or loss. If the financial
asset is subsequently impaired, any
previous gain or loss that has been
recognized directly in equity is
recognized in profit or loss in accordance
with Section 3.c.1; and
g. The following securities booked
under the HTM category, shall be
exempted from the tainting provision for
prudential reporting purposes which
prohibits banks from using the HTM
category and requires reclassification of the
entire HTM portfolio to the Available-for- Sale
category during the reporting year and for
the succeeding two full financial years
whenever a bank sells or reclassifies more
than an insignificant amount of HTM
investments before maturity, other than for
reasons specified in Items a(a) to
a(c) of Section 3 of this Appendix:
Provided, That securities rejected under
items i and ii shall continue to be
booked under the HTM category:
i. Securities exchanged pursuant to
the Domestic Debt Exchange Offer of the
ii. Securities offered and accepted in
the Global Bond Offering of the Republic
of the Philippines; and
iii. Foreign currency denominated NG/
BSP bonds/debt securities, outstanding as of
10 February 2007, which were reclassified
from the HTM category in view of the
increased risk-weights of said securities
under Appendix 63b within thirty (30)
calendar days after 10 February 2007. The
subject securities once reclassified shall be
measurement requirements of their new
category (i.e., Available-for-Sale securities).
Section 5. Impairment. A debt or equity
security is impaired and impairment losses
are incurred if, and only if, there is objective
evidence of impairment as a result of event

that occurred after the initial recognition of the
security (a loss event) and that loss event has
impact on the estimated future cash flows of
the securities. Losses expected as a result of
future events, no matter how likely, are not
recognized. Objective evidence that the
security is impaired includes observable data
that comes to the attention of the holder of
the security about the following loss events:
a. significant financial difficulty of the
issuer or obligor;
b. a breach of contract, such as a
default or delinquency in interest or
principal payments;
c. the FI, for economic or legal
reasons relating to the issuers financial
difficulty, granting to the issuer a concession
that the FI would not otherwise consider;
d. it becoming probable that the issuer
will enter bankruptcy or other financial
reorganization;
e. the disappearance of an active
market for that security because of financial
difficulties; or
f. observable data indicating that
there is a measurable decrease in the
estimated future cash flows from a portfolio
of securities since the initial recognition of
those assets, although the decrease cannot
yet be identified with the individual
securities in the portfolio, including:
(1) adverse change in the payment
status of issuers in the portfolio; or
(2) national or local economic
conditions that correlate with defaults on
the securities in the portfolio.
The disappearance of an active market
because an FIs held securities are no
longer publicly traded is not evidence of
impairment. A downgrade of an issuers
credit rating is not, of itself, evidence of
impairment, although it may be evidence
of impairment when considered with other
available information. A decline in the fair
value of a security below its cost or
amortized cost is not necessarily evidence
APP. 33
08.12.31
of impairment (for example, a decline in

fair value of an investment in debt security
that results from an increase in the risk free
interest rate).
In addition to the types of events
enumerated in Items a to f in this
Section, objective evidence of impairment
for an investment in an equity instrument
includes information about significant
changes with an adverse effect that have
taken place in the technological, market,
economic or legal environment in which
the issuer operates and indicates that the
cost of the investment in the equity
instrument may not be recovered. A

significant or prolonged decline in the fair
value of an investment in an equity security
below its cost is also objective evidence of
impairment.
Section 6. Operations Manual. The FI shall
maintain an operations manual for booking
and valuation of HTM, Securities at Fair
Value through Profit or Loss, Available-forSale and INMES.
626 dated 23 October 2008, 558 dated 22 January 2007,
546 dated 21 September 2006 and 509 dated 01 February 2006)
APP. 33a
07.12.31
ESTABLISHING THE MARKET BENCHMARKS/REFERENCE PRICES AND

COMPUTATION METHOD USED TO MARK-TO MARKET DEBT
AND MARKETABLE EQUITY SECURITIES
General Principle
As a general rule, to the extent a credible market pricing mechanism as determined by the
BSP exists for a given security, that market price shall be the basis of marking-to-market.
However, in the absence of a market price, a calculated price shall be used as prescribed
herein.
Marking-to-Market Guidelines
To ensure consistency, the following shall be used as bases in marking-to-market
debt and equity securities:
Type of Security
Market Price Basis
A. Equity Securities Listed in the Stock Exchange

1. Traded in the Philippines
Same day closing price as quoted at the

Philippine Stock Exchange. In case of halt
trading/suspension or holidays, use the last
available closing price.
2. Traded Abroad
Latest available closing price from the

exchange where the securities are traded.
B. Foreign Currency-Denominated Debt Securities Quoted in Major Information Systems

(e.g., Bloomberg, Reuters)
1. US Treasuries
Price as of end of day, Manila time.
2. US Agency papers (e.g., Fannie Maes,

Freddie Macs, Ginnie Maes, Municipal
papers
Latest available price for the day, Manila

time. In the absence of a price, use average
quotes of at least three (3) regular
brokers/market makers.*
3. Brady Bonds
Same as B.2.
4. For all US$-denominated government

and corporate securitites
Same as B.2.
5. Other foreign-currency securities
Same as B.2.
* Based on done rates if available. If done rates are not available, use the mid rate between bid and offer. If no
mid rates are available use the bid rate.
APP. 33a
07.12.31
C. Foreign Currency Denominated

Debt Securities Traded in a Local
Registered Exchange or Market
The basis for marking-to-market foreign
currency-denominated debt securities
traded in a local registered exchange or
market shall be the same as those used in
Peso-Denominated Government Securities
in Section D below.
D. Peso-Denominated Government
Securities
The benchmark or reference prices shall
be based on the weighted average of done
or executed deals in a trading market
registered with the SEC. In the absence of
done deals, the best firm bid per benchmark
tenor shall be used in calculating the
benchmark: Provided, That the best firm
offer per benchmark tenor shall likewise
be included as soon as permissible under
securities laws and regulations.
The benchmark or reference rate shall
be computed and published in accordance
with prescribed guidelines on the
computation of reference rates by a
Calculation Agent which is recognized by
the Bankers Association of the Philippines
(BAP): Provided, That both the Calculation
Agent and its method of computation are
acceptable to the BSP.
To ensure the integrity of the
benchmark or reference prices, the
Calculation Agent shall perform the
following:
1. Monitor the quality of the
contributed source rates for the benchmark;
2. Monitor the data contributors and
replace participants, upon consultation
with the BAP, that fail to meet commitments
to the benchmark;
3. Monitor the activities of the
participants to ensure compliance with
their commitments and for possible

market manipulation and enforce
sanctions on errant participants and
immediately inform BAP and the BSP
thereon; and
4. Review and upgrade the
benchmark setting methodology upon
consultation with BAP on a continuing
basis, including documentation and
publications thereof.
Accordingly, all data on done and firm
bids/offers must be credible and verifiable
and preferably sourced from trade
executions and reporting systems that are
part of a regulated and organized market
duly licensed by the SEC where the data
contributors are bound to uphold the
principles of transparency, fair trading and
best execution.
E. Peso-Denominated Private Debt
Securities
The basis for marking-to-market pesodenominated debt securities traded in an
organized market shall be the same as
those used in Peso-Denominated
Government Securities in Section D above.
For private debt securities which are
not traded in an organized market, the
mark-to-market value shall be based on
the corresponding government security
benchmark plus risk premium. The
corresponding government security
benchmark shall be determined according
to Section D above. In determining the
risk premium, the credit risk rating of the
securities involved given by a BSPrecognized credit risk rating agency shall
be established and taken into account
whenever available. In the absence of such
credit risk rating, alternative analyses may
be used: Provided, That, these are welljustified by sound risk analysis principles.
APP. 33a
07.12.31
Other Guidelines
For the market valuation of
securities
with odd tenors,
interpolated yields derived from the
benchmark or reference rates in
accordance with the BSP-approved
guidelines for
computation of
reference rate in Section D above shall
be used.
Penalties and Sanctions

FIs and the concerned officers found
to have violated the provisions of these
regulations shall be subject to the penalties
prescribed under Subsec. X388.5:
Provided, That non-compliance with the
above guidelines may be a basis for a finding
of unsafe and unsound banking practice.
(As amended by M-2007-006 dated 28 February 2007)
APP. 34
05.12.31
GUIDELINES ON THE USE OF SCRIPLESS (RoSS) SECURITIES

AS SECURITY DEPOSIT FOR THE FAITHFUL PERFORMANCE OF TRUST DUTIES
(Appendix to Sec. X405 and X415)
Definition of Terms and Acronyms
Scripless securities and RoSS securities
- refers to uncertificated securities issued
by the Bureau of Treasury (BTr) that are
under the BTrs Registry of Scripless
Securities
Trust institution - refers to a bank that
is authorized to engage in trust business
BTr - Bureau of Treasury
RoSS - Registry of Scripless Securities
BSP - Bangko Sentral ng Pilipinas
BSP-SES - Supervision and Examination
Sector of BSP
SRSO - Supervisory Reports and Studies
Office of BSP-SES
BSP-Comptrollership - Accounting
Department of BSP
GSED - Government Securities Eligible
Dealer of the BTr
DDA - refers to the regular demand
deposit account of a bank with BSPComptrollership
MOR - Manual of Regulations for Banks
Appropriate supervising and examining
department or responsible SED - refers to
the Department of Commercial Banks I in
the case of EKBs; or the Department of
Commercial Banks II in the case of nonEKBs and branches of foreign banks; or the
Department of Thrift Banks and Non-Bank
Financial Institutions in the case of thrift

banks, supervised by BSP.
A. Basic Requirements
1. The BSP-SES shall file with BTr an
application to open a RoSS Principal
Securities Account where RoSS securities
of trust institutions used as security deposit
for trust duties shall be held. BSP-SES shall
use Annex 1 for this purpose.
2. Using Annex 1-A, BSP-SES shall
also apply for a Client Securities Account
(sub-account) for each trust institution under
its RoSS Principal Securities Account to
enable BSP-SES to keep track of the
security deposit. BTr shall maintain Client
Securities Accounts for P1,000 each
month per account.
3. A trust institution which has a DDA
with BSP-Comptrollership shall act as its
own settlement bank.
A trust institution which does not have
a DDA with the BSP-Comptrollership
shall designate a settlement bank which
will act as conduit for transferring securities
for trust duties to the BSP-SES account and
for paying interest, interest coupons and
redemption proceeds. The trust institution
shall inform the appropriate SED of the BSP
of the designation of a settlement bank.
4. Each trust institution shall
accomplish an Autodebit/Autocredit
Authorization for its client securities
account under the BSP-SES RoSS account.
The document will authorize the BTr and
the BSP to credit the DDA of the trust
institution with BSP-Accounting for
coupons/interest payments on securities in
the BSP-SES RoSS accounts and to debit
the DDA for the monthly fees payable to
BTr for maintaining its client securities
accounts with BSP-SES. It will also
APP. 34
05.12.31
authorize the BTR and BSP to credit the

deposit account of BSP-SES with BSPComptrollership for the redemption
proceeds of securities that mature while in
the BSP-SES RoSS account.
A trust institution with a DDA with BSPComptrollership shall use Annex 2-A
while a trust institution with a settlement
arrangement shall use Annex 2-B.
5. BSP-SES shall open a deposit
account with BSP-Comptrollership where
the redemption value of securities shall be
credited, in the event such securities
mature while lodged in the RoSS account
of BSP-SES.
6. SRSO shall be responsible for
keeping track of the deposit and
withdrawal of securities held under the
BSP-SES Principal Securities Account and
the Client Securities Accounts of the trust
institutions. SRSO shall instruct BTr to
transfer securities out of the BSP-SES
account and the corresponding client
securities accounts of trust institutions only
after receiving authorization from the
Director (or in his absence, the designated
alternate officer) of the appropriate SED of
SES.
SRSO shall also be responsible for
keeping track of the BSP-SES deposit
account with the BSP-Comptrollership
representing credits for the redemption
value of security deposit of trust institutions
that have matured while in the RoSS account
of BSP-SES. SRSO shall maintain subaccounts for each trust institution for the
purpose. SRSO shall instruct BSPComptrollership to transfer balances out of
the deposit account and the corresponding
sub-account of the trust institution only after
receiving authorization from the Director
(or in his absence, the designated alternate
officer) of the appropriate SED of SES.
7. BSP-SES shall subscribe to the
Telerate electronic trading system which is
linked to BTrs RoSS and cause the
installation of a Telerate terminal at SRSO.
Trust institutions may be required to

reimburse BSP-SES for whatever expenses
that may be incurred in connection with
the subscription.
8. Every trust institution must ensure
that it has adequate security deposit for
trust duties pursuant to the provisions of
Subsecs. X405.1, X405.2, X405.3 and
X405.4 of the MOR.
9. BTr shall provide BSP-SES with
the end-of-day transaction report whenever
a transaction in any client securities
account is made. BTr shall also provide
BSP-SES a monthly report of balances of
each client securities account.
10. Every quarter, the responsible SED
of BSP-SES shall determine, based on the
Report of Trust and Other Fiduciary
Activities (CBP 7-16-35TR) submitted by
the trust institution, whether or not the trust
institutions security deposit for trust
duties is sufficient pursuant to the provision
of the MOR mentioned above. In case of
deficiency, the department shall
recommend the imposition of sanctions
and/or any other appropriate action to
higher authorities.
B. Procedures for Assigning RoSS
Securities as Security Deposit for Trust
Duties
1. The trust institution shall advise the
appropriate BSP-SES department that it will
transfer RoSS securities to BSP-SES. The
advise should be received by the BSP-SES
at least two (2) banking days before the date
of transfer using the prescribed form
(Annex 3) and checking Box b of said form.
(Box a shall be checked by a new trust
institution that is making an initial security
deposit pursuant to Subsec. X404.2 of the
MOR.) The advice should be sent by cc mail
or by fax to be followed by an official letter
duly signed by an authorized trust officer.
2. The trust institution shall
electronically instruct BTr to transfer
APP. 34
05.12.31
securities from its own RoSS accounts to

the BSP-SES RoSS and its corresponding
Client Securities Account on the specified
date. In the case of a trust institution with a
settlement arrangement, the instruction
shall be coursed through the settlement
bank and the securities shall come from
the RoSS account of the same bank.
3. BTr shall effect the transfer upon
verification of RoSS balances. At the end of
the day, BTr shall transmit a transaction
report to SRSO containing the transfer.
4. SRSO shall provide the appropriate
BSP-SES department a copy of the report.
5. The BSP-SES department concerned
shall check from the report whether BTr
effected the transfer indicated in the advice
(Annex 3) sent earlier by the trust
institution.
C. Procedures for Replacing RoSS
Securities
appropriate SED of BSP-SES that it will
replace existing RoSS securities assigned
as security deposit. The advise should be
received by the BSP-SES at least two (2)
banking days before the date of replacement
using the prescribed form (Annex 3). The
trust institution shall check Box c of the
form and indicate the details of the
securities to be withdrawn. The advice
should be sent by cc mail or by fax to be
followed by an official letter duly signed
by an authorized trust officer.
2. The responsible BSP-SES department
shall verify whether the securities to be
replaced are in the RoSS account of BSPSES and the sub-account of the trust
institution and whether the book value of
the securities to be deposited is equal to or
greater than those to be withdrawn. The
department concerned shall immediately
communicate with the trust institution in
case of a discrepancy.
securities from its own RoSS account to

the BSP-SES RoSS accounts and its
corresponding Client Securities Account on
the specified date. In the case of a trust
institution with a settlement arrangement,
the instruction shall be coursed through
the settlement bank and the securities shall
come from the RoSS account of the same
bank.
verification of RoSS balances. At the end of
the day, BTr shall transmit a transaction
report to SRSO containing the transfer.
5. SRSO shall immediately provide the
appropriate BSP-SES department a copy
of the report.
shall immediately check from the report
whether the securities transferred to the
BSP-SES account are the same securities
described in the advice (Annex 3) sent
earlier. If in order, the Director (or in his
absence, the designated alternate officer)
of the department concerned shall
authorize SRSO to instruct BTr to transfer
the securities specified to be withdrawn
from the BSP-SES account to the trust
institutions (or the settlement banks) RoSS
account. The Department concerned shall
use Annex 5 and check Boxes a and d.
Should there be any discrepancy, the
department shall inform the trust institution
immediately. The authority to allow the
withdrawal should be transmitted to SRSO
not later than the day after the replacement
securities were transferred to the BSP-SES
account.
The BSP-SES department concerned
shall also advise the trust institution that it
has approved the replacement of security
deposit by using Annex 6 and checking
Boxes a and d and the appropriate box
under d depending on whether or not the
trust institution has a settlement
arrangement.
7. On the same day, SRSO shall
instruct BTr to transfer the securities
APP. 34
05.12.31
specified to be withdrawn from the BSP-SES

account to the RoSS account of the trust
institution (or its settlement bank).
8. BTr shall effect the transfer/
withdrawal. At the end of the day, BTr shall
send a report to SRSO containing the
transfer/withdrawal.
effected the transfer/withdrawal.
D. Procedures for Withdrawing RoSS
Securities
1. The trust institution shall advise
the appropriate BSP-SES department that it
will withdraw existing RoSS securities
assigned as security deposit. The advice
should be received by the BSP-SES at least
two (2) banking days before the date of
withdrawal using the prescribed form
(Annex 4) and indicating therein details of
the securities to be withdrawn. The advice
should be sent by cc mail or by fax to be
followed by an official letter duly signed by
an authorized trust officer.
shall verify whether the securities to be
withdrawn are in the RoSS account of BSPSES and the Client Securities Account of the
trust institution. The department shall also
determine whether the amount of remaining
security deposit will still be adequate in spite
of the proposed withdrawal. If in order, the
alternate officer) of the department
concerned shall authorize SRSO to instruct
BTr to transfer the securities specified to be
withdrawn from the BSP-SES account to the
trust institutions own RoSS account (or its
settlement bank). The Department
concerned shall use Annex 5 and check
Boxes b and d. Should there be any
discrepancy, the department shall inform the
trust institution immediately. The authority
to allow the withdrawal should be
transmitted to SRSO not later than the date

of the withdrawal indicated in the advice
(Annex 4) sent earlier by the trust institution.
The BSP-SES department concerned
shall also advise the trust institution that it
has approved the withdrawal of security
deposit by using Annex 6 and checking
Boxes b and d and the appropriate box
under d depending on whether or not the
arrangement.
3. On the same date, SRSO shall
instruct BTr to transfer the securities
specified to be withdrawn from the BSP-SES
account to the RoSS account of the trust
institution (or its settlement bank).
4. BTr shall effect the transfer/
withdrawal. At the end of the day, BTr shall
send to SRSO a report which contains the
transfer/withdrawal.
effected the withdrawal stated in the
advice (Annex 4) sent earlier by the trust
institution.
E. Procedures for Crediting Interest
Coupon Payments
On coupon or interest payment date,
BTr shall instruct BSP-Comptrollership to
credit the DDA of trust institutions or their
designated settlement banks for coupon/
interest payment of securities held under
the RoSS account of BSP-SES.
F. Procedures for Crediting and
Withdrawing the Redemption Value of
Matured Securities That are in the BSP-SES
RoSS Account
1. On maturity date, BTr shall instruct
BSP-Comptrollership to credit the deposit
account of BSP-SES with BSPComptrollership for the redemption value
of securities that mature while held as security
deposit in the RoSS account of BSP-SES.
APP. 34
05.12.31
2. BTr shall send to SRSO a copy of

the credit advice.
3. SRSO shall immediately provide the
appropriate BSP-SES department a copy of
the credit advice.
shall immediately inform the trust
institution concerned of the cash credit and
shall inquire whether the trust institution
intends to transfer securities to the RoSS
account of the BSP-SES to replace the
matured securities.
appropriate BSP-SES department that it will
transfer RoSS securities to BSP-SES in place
of the cash credited to the deposit account
of BSP-SES with BSP-Comptrollership for
matured securities. The trust institution shall
check Box d of the prescribed form (Annex
3). The concerned department shall
determine if the book value of the securities
to be transferred is equal to or greater than
the cash credit.
securities from its own RoSS accounts to
the BSP-SES RoSS account and its
corresponding Client Securities Account on
the specified date. In the case of a trust
institution with a settlement arrangement, the
instruction shall be coursed through the
settlement bank and the securities shall come
from the RoSS account of the same bank.
verification of RoSS balances. At the end
of the day, BTr shall send a report to SRSO
containing the transfer.

shall immediately check from the report
whether the securities transferred to the
BSP-SES account are the same securities
described in the advice (Annex 3) sent earlier
by the trust institution. If in order, the
alternate officer) of the Department shall
direct the SRSO to instruct BSP-Accounting
Department to debit the BSP-SES deposit
account and transfer the funds to the DDA
of the trust institution (or its designated
settlement bank). The Department
concerned shall use Annex 5 and check
Boxes c and e.
The BSP-SES department concerned shall
also advise the trust institution that it has
approved the replacement of matured
securities by using Annex 6 and checking
Boxes c and e and the appropriate box
under e depending on whether or not the
arrangement.
10. SRSO shall direct BSP-Accounting to
debit the BSP-SES deposit account and
credit the same amount to the DDA of the
trust institution (or its designated settlement
bank) using Annex 7.
11. BSP-Accounting shall effect the
transaction and send a copy of the debit
advice to SRSO and a copy of the credit
advice to the trust institution (or the
designated settlement bank).
12. SRSO shall send a copy of the debit
advice to the SES department concerned.
APP. 34
05.12.31
Annex 1
SUPERVISION AND EXAMINATION SECTOR
(Date)
______________________
Treasurer of the Philippines
Bureau of Treasury
Intramuros, Manila
Attention:
Dear ________________________:
The Supervision and Examination Sector of the Bangko Sentral ng Pilipinas (BSPSES) hereby makes an application to open a Principal Securities Account in the Registry of
Scripless Securities (RoSS) for the purpose of holding the security deposit for the faithful
performance of trust duties of institutions engaged in trust business pursuant to Section 65
of R.A. No. 337, as amended.
We understand that the Bureau of Treasury shall maintain the Principal Securities
Account of BSP-SES for free.
Very truly yours,
______________________
Deputy Governor
APP. 34
05.12.31
Annex 1-A
SUPERVISION AND EXAMINATION SECTOR
(Date)
______________________
Bureau of Treasury
Intramuros, Manila
Attention:
Dear Ms. _________________________

In connection with the Principal Securities Account of BSP-SES in the Registry of
Scripless Securities (RoSS), please open Client Securities Account for the following trust
institutions so we can keep track of their security deposit for the faithful performance of trust
duties. Please note that the settlement bank of the institution, if it is required, is also indicated.
Name of Trust Institution
1. ______________________________
Name of Settlement Bank, where required

_________________________________
2. ______________________________
_________________________________
3. _______________________________
_________________________________
We understand that the Bureau of Treasury will maintain the Client Securities Account
for P1,000 per month per account.
Very truly yours,
___________________________
Authorized Signatory
APP. 34
05.12.31
Annex 2-A
To be used by a trust institution with own demand deposit account with BSP-Comptrollership
Letterhead of Trust Institution
AUTODEBIT/AUTOCREDIT AUTHORIZATION
The
(name of bank)
hereby authorizes the Bureau of Treasury
(BTr) and the Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account
with BSP-Comptrollership for coupons/interest payment of our securities in the BSP-SES RoSS
accounts; and to settle the payment of monthly maintenance fees to BTr of our client securities
account under the BSP-SES RoSS account. We also authorize the BTr and the BSP to credit
the Account of BSP-SES with BSP-Comptrollership for the redemption proceeds of our securities
in the event such securities mature while in the RoSS account of BSP-SES.
This authorization will take effect on
(indicate date)
____________________________
(Authorized Signatory)
APP. 34
05.12.31
Annex 2-B
To be used by a trust institution with settlement arrangement with a bank

AUTO DEBIT/AUTOCREDIT AUTHORIZATION
The
(name of settlement bank)
for the account
(name of trust institution) hereby authorizes the Bureau of Treasury (BTr) and the
of
Bangko Sentral ng Pilipinas (BSP) to debit/credit our demand deposit account with BSPComptrollership for coupons/interest payment of securities of the trust institution in the BSPSES RoSS accounts; for maturing securities of the trust institution held in our RoSS Principal
Securities Account with BTr; and to settle the payment of monthly maintenance fees to BTr of
our client securities account under the BSP-SES RoSS account.
The (name of trust institution) also authorizes the BTr and the BSP to credit the
Account of BSP-SES with BSP-Comptrollership for the redemption proceeds of our securities in the event such securities mature while in the RoSS account of BSP-SES.
This authorization will take effect on
(indicate date)
___________________________________
(Authorized Signatory of Settlement Bank)
___________________________________
(Authorized Signatory of Trust Institution)
APP. 34
05.12.31
Annex 3
Date:
The Director
SED I/SED II/SED III/SED IV
Dear Sir:
We are transferring on (indicate date of transfer) the following securities to your Principal
Securities Account and our Client Securities Account (sub-account) as our security deposit
for the faithful performance of trust duties pursuant to Section 65 of R.A. No. 337, as amended.
Type
ISIN
Purchase
Date
Issue
Date
Due
Date
Remaining
Tenor a/
We are transferring the above securities:

a. As our initial deposit
b. As an additional security deposit
c. To replace the following securities which we deposited on
Type
ISIN
Purchase
Date
Issue
Date
Due
Date
Remaining
Tenor a/
Face
Amount
(date)
Face
Amount
Purchase
Price
.
Purchase
Price
d. To replace matured securities the redemption value of which P ______________

is credited to the deposit account of BSP-SES with BSP-Comptrollership.
Very truly yours,
________________________________________
Name and Designation of Authorized Signatory
a/ Reckoned from actual date of transfer/withdrawal.
APP. 34
05.12.31
Annex 4
Date:
The Director
SED I/SED II/SED III/SED IV/SED V
Dear Sir:
We wish to withdraw on (indicate date of transfer) the following securities used as
security deposit for the faithful performance of trust duties from the Principal Securities
Account and from our corresponding Client Securities Account (sub-account).
Type
ISIN
Purchase
Date
Issue
Date
Due
Date
Remaining
Tenor a/
Face
Amount
Purchase
Price
Very truly yours,
________________________________________
Name and Designation of Authorized Signatory
APP. 34
05.12.31
Annex 5
MEMORANDUM
SED I/SED II/SED III/ SED IV
For
The Director
Supervisory Reports and Studies Office
From
The Director
Subject :
Date
Scripless Securities Used As Deposit for Trust Duties
In connection with the request of
(indicate name of trust institution) dated _______ to:
a. Replace outstanding RoSS securities

b. Withdraw RoSS securities
c. Replace cash credit of matured securities with outstanding RoSS securities
you are hereby authorized to:
d. Instruct the Bureau of Treasury to transfer the following securities out of the BSP-SES
RoSS accounts to the RoSS Principal Securities Account of (indicate name of trust
institution or, where applicable, the name of its settlement bank)
Type
ISIN
Purchase
Date
Issue
Date
Due
Date
Remaining
Tenor a/
Face
Amount
Purchase
Price
e. Instruct BSP-Comptrollership to debit the BSP-SES deposit account in the amount of

P_____________ and to transfer said amount to the demand deposit account of (indicate
name of trust institution or, where applicable, the name of its designated
settlement bank).
________________________
APP. 34
05.12.31
Annex 6
SED I/SED II/SED III/SED IV
(Date)
----------------------------------(Name of Trust Institution)
-------------------------------------------------(Address)
-------------------------------------------------Subject:
Scripless Securities Used As Deposit for Trust Duties
Dear Mr. _______________:

We are pleased to inform you that we have approved your request dated ___________ to:
a. Replace outstanding RoSS securities
b. Withdraw RoSS securities
c. Replace cash credit of matured securities with outstanding RoSS securities.
Accordingly, we have authorized the Supervisory Reports and Studies Office to:
d. Instruct the Bureau of Treasury to transfer the following securities out of the BSP-SES
RoSS accounts to -
the RoSS Principal Securities Account

your settlement banks RoSS Principal Securities Account, the securities
described in your request.
e. Instruct BSP-Comptrollership to debit the BSP-SES deposit account in the amount of

P_______ and to credit said amount to -
your demand deposit account with BSP-Comptrollership

your settlement banks demand deposit account with BSP-Comptrollership
Very truly yours,
________________________________
APP. 35
05.12.31
PROFORMA PAYMENT FORM

PAYMENT FORM - (Department Name)
Date _________________
The Director
Cash Department
Vito Cruz, Cor. Mabini, Manila
Sir:
Attached is _______________________________
(Bank)
in the amount of P _____________ as payment for:
1. LEGAL RESERVE
2. CB:IBRD LOAN/LC:STD
BORROWERS NAME
___________________
___________________
___________________
___________________
Total
_____________
(Check/DD/CC)
_________
Number
AMOUNT
____________
PRINCIPAL
_________
_________
_________
_________
_________
INTEREST
________
________
________
________
________
PENALTY
________
________
________
________
________
____________
Excess/deficiency will be credited/debited to the bank's Demand Deposit account with BSP.
3. CASH DIVIDENDS ON PREFERRED SHARES
YEAR
_________
_________
4. REDEMPTION OF PREFERRED SHARES
5. SUPERVISORY FEES
6. FINES/PENALTIES
NATURE
a) Late reporting
b) Reserve deficiency
c) SBL
d) Others (Specify)
YEAR
_________
_________
PERIOD COVERED
_______________
_______________
_______________
_______________
TOTAL
AMOUNT
__________
__________
_____________
AMOUNT
__________
__________
______________
AMOUNT
__________
__________
_____________
AMOUNT
__________
__________
__________
__________
_____________
_____________
_____________________________
Signature Over Printed Name
Position
APP. 36
05.12.31
SUGGESTED GESTATION/GRACE PERIODS FOR

AGRICULTURE AND FISHERIES PROJECTS
PROJECT
A. Crops
Abaca
Blackpepper
Cacao
Calamansi
Cashew
Coconut
Coffee
Durian
Lanzones
Mango
Mangosteen
Pomelo
Rambutan
Rubber
Palm Oil
Pili
Jackfruit
Others a
B. Livestock
C. Poultry
D. Fisheries
GESTATION
(Years)
SUGGESTED
MAXIMUM
GRACE PERIOD
(Years)
4-6
3-4
4-6
4-6
5
7-8
3-4
5-7
6-8
5-7
6-8
5-7
6-7
5-7
4-6
6-8
5-7
5
4
5
6
5
7
4
7
7
7
7
7
5
7
7
7
7
will depend on the cash flow
or type of project, up to a
maximum of seven (7) years
Note: Cash Flows/Cost and Return Analysis for these projects are available at the Agribusiness and
Marketing Assistance Service, Department of Agriculture.
Others - other crops/projects as may be determined by the Department of Agriculture through the Agricultural Credit Policy
Council which may include industrial tree crops planted in private lands and used for intercropping purposes.
APP. 37
05.12.31
BASIC GUIDELINES IN ESTABLISHING BANKS

A. GUIDING PRINCIPLE
The new banking organization must
have suitable shareholders, adequate
financial strength, a legal structure in line
with its operational structure, and a
management with sufficient expertise and
integrity to operate the bank in a sound and
prudent manner. Where the proposed
owner or parent organization is a foreign
bank, the prior consent of its home country
supervisor should be obtained.
B. THE APPLICATION
1. The application for authority to establish
a bank shall be accomplished in triplicate.
The original copy and duplicate copy shall
be submitted to the Supervisory Reports
and Studies Office (SRSO), BSP. The third
copy shall be retained by the organizers.
2. The required papers/documents and
other information in support of the
application are, as follows:
a. Agreement to organize a bank.
b. Accomplished bio-data sheet of
each of the incorporators, proposed
directors and officers, and subscribers.
c. Evidence of Filipino citizenship of
each of the incorporators, proposed
directors and officers, and subscribers if he/
she claims to be a Filipino citizen:
(1) In case of a natural-born Filipino
citizen, original or certified true copy of
birth certificate from issuing office. In case
the birth certificate cannot be produced by
reason of destruction or otherwise, an
affidavit to that effect by the civil registrar
concerned should be submitted
accompanied by an affidavit by the
incorporator, director, officer or subscriber
himself stating, among other things, the
date and place of his birth and the names
of his parents and their citizenship at the
time of the affiants birth; and joint
affidavit of two (2) disinterested/unrelated

persons stating, among other things, the
date and place of the subjects birth and
the names of his parents and their
citizenship at the time of the subjects birth;
or
(2) In case of a naturalized citizen of
the Philippines, the naturalization
certificate, certificate of registration thereof
with the civil registrar and other pertinent
papers; or
(3) In the absence of the abovementioned documents, a photocopy of the
passport (with original to be presented for
verification).
d. Statement of assets and liabilities
as of a date not earlier than ninety (90) days
prior to the filing of application of each of
the subscribers, sworn to by the subscriber
himself and duly notarized, or certified by
a Certified Public Accountant (CPA), with
supporting schedules showing the
(1) In the case of cash in banks: (a)
name of depository bank, (b) nature of
deposit, and (c) amount of deposit with
each bank as of balance sheet date;
(2) In the case of securities: (a) name
and address of issuing corporation/entity,
(b) number of shares owned as of balance
sheet date, (c) par value, (d) date and cost
of acquisition, and (e) information as to
whether the securities are actively traded
in the stock market and, if so, their current
market price;
(3) In the case of land: (a) description
(agricultural, etc.), (b) area, (c) location, (d)
date and cost of acquisition, (e) transfer
certificate of title or tax declaration
number, (f) amount of encumbrance or
lien, if any, (g) assessed value, and (h)
current market value (state basis of
valuation);
APP. 37
05.12.31
(4) In the case of real estate

improvements: (a) description of
improvement (residential house, etc.), (b)
location, (c) date and cost of acquisition/construction, (d) assessed value, and (e)
current market value (state basis of
valuation);
(5) In the case of accounts receivable,
state the name and address of each debtor
and the amount due from each; and
(6) In the case of accounts payable or
other liabilities, state the name and address
of each creditor and the amount owed to
each.
(Evidences of asset ownership such as
bank certification/statement, savings
passbook, certificate of time deposit, bond
or stock certificate, transfer certificate of
title, tax declaration, etc. and waiver of
rights under R. A. No. 1405, as amended,
shall be submitted/presented for
verification).
e. Statement of income and expense for
the last three (3) calendar years of each of
the subscribers, sworn to by the subscriber
himself and duly notarized, or certified by a
CPA.
f. Certified photocopies of Income
Tax Returns (ITRs) for the last three (3)
calendar years of each of the incorporators,
proposed directors and officers, and
subscribers.
g. Clearances from the National
Bureau of Investigation (NBI) and Bureau
of Internal Revenue (BIR) of each of the
incorporators, proposed directors and
officers, and subscribers.
h. For corporate subscribers:
(1) Copy of the board resolution
authorizing the corporation to invest in
such bank; and designating the person who
will represent the corporation in connection
therewith;
(2) Copy of the latest articles of
incorporation and by-laws;
(3) List of directors and principal
officers;
(4) List of major stockholders,

indicating the citizenship and the number,
amount and percentage of the voting and
non-voting shares held by them;
(5) A copy of the corporations audited
financial statements for the last two (2) years
prior to the filing of application;
(6) A copy of the corporations annual
report to the stockholders for the year
immediately preceding the date of filing
of application;
(7) Certified photocopies of ITRs for
the last two (2) calendar years; and
(8) BIR clearance.
i. For foreign bank subscribers:
(1) A copy of the board resolution
authorizing the bank to invest in a bank in
the Philippines, and designating the person
who will represent the bank in connection
therewith;
(2) Historical background of the bank,
as follows:
(b) List of domestic branches,
agencies, other offices, subsidiaries
and affiliates and their line of
business (if different from banking)
in the home country;
(c) List of foreign branches, agencies,
other offices, subsidiaries and
affiliates, and their location and line
of business (if different from
banking);
(d) Range of banking services offered;
and
(e) Financial and commercial
relationship with the Philippine
government, local banks, business
entities and residents, past or
present;
(3) A copy each of the banks latest
amended articles of incorporation and bylaws;
(4) List of the banks directors and their
citizenships;
(5) List of principal officers of the
banks head office;
APP. 37
05.12.31
(6) List of major stockholders,

indicating the citizenship and the number,
amount and percentage of the voting and
non-voting shares held by them;
(7) A copy of the banks audited
financial statements for the last two (2)
years prior to the filing of application;
(8) A copy of the banks annual report
to the stockholders for the year
immediately preceding the date of filing
of application; and
(9) A certification from the banks
home country supervisory authority that
the banks home country supervisory
authority has no objection to the banks
investment in a bank in the Philippines,
and that adequate information on the bank
and its subsidiaries will be provided to the
BSP to the extent allowed under existing
laws.
j. Detailed plan of operation and
economic justification for establishing the
bank. (The plan of operation should
describe and analyze the market area
from which the bank expects to draw the
majority of its business and establish a
strategy for the banks ongoing operations.
It should also describe how the bank will
be organized and controlled internally.
The economic justification for establishing
the bank should provide information on
the economic profile of the region, e.g.,
population, agricultural/industrial/service
projects to be financed).
k. Projected monthly financial
statements for the first twelve (12) months
of operations, together with assumptions.
(The financial projections should be
consistent and realistic in relation to the
banks proposed strategic plan, and should
show sufficient capital to support the
banks strategy, specially in the light of
start-up costs and possible operational
losses in the early stages.)
l. Proposal by
each of
the
subscribers on how they will raise the
amount to pay for their proposed paid-up
capitalization in the bank.
3. The application shall be considered

filed on a first-come, first-served basis:
Provided, That all the required documents
are complete and properly accomplished.
4. Pursuant to Section 26 of R. A. No.
7653, approval of application shall be
subject, among others, to the waiver of
secrecy of deposits under Sec. X338.
5. Prescribed application form, together
with other forms, is available at the Studies
and Chartering Group, SRSO.
C. CAPITAL REQUIREMENT/
STOCKHOLDINGS
1. Banks to be established shall comply
with the required minimum capital
prescribed under Subsec. X106.1 or as
may be prescribed by the Monetary Board.
2. At least twenty-five percent (25%) of
the total authorized capital stock shall be
subscribed by the subscribers of the
proposed bank, and at least twenty-five
percent (25%) of such subscription shall be
paid-up: Provided, That in no case shall the
paid-up capital be less than the minimum
required capital stated in Item 1 above.
3. Stockholdings of any person or persons
related to each other within the third (3rd)
degree of consanguinity or affinity, or one
(1) or more corporations wholly-owned or
majority of the voting stock of which is
owned by such person or persons shall not
exceed twenty percent (20%) of the voting
stock of the bank; while stockholdings of
any other corporation, or two (2) or more
corporations wholly-owned or majority of
the voting stock of which is owned by the
same group of persons shall not exceed
thirty percent (30%) of the voting stock of
the bank. (Temporarily waived for a
period of 10 years from the effectivity of
R.A. No. 7906, i.e., 17 March 1995 for TBs;
and from the date of approval of R.A. No.
7353, i.e., 2 April 1992 for RBs).
4. At least seventy percent (70%) of
voting stock of any KB shall be owned by
Filipino citizens: Provided, That such
percentage may be lowered to sixty
APP. 37
05.12.31
percent (60%) with approval of the

President of the Philippines. For any TB,
at least forty percent (40%) of its voting
stock shall be owned by Filipino citizens.
Subject to Section 4 of R.A. No. 7353, all
of the capital stock of any RB shall be fully
owned and held, directly or indirectly, by
Filipino citizens or corporations,
associations or cooperatives qualified under
Philippine laws to own and hold such
capital stock.
D. INCORPORATORS/SUBSCRIBERS,
DIRECTORS AND OFFICERS
1. The incorporators/subscribers and
proposed directors and officers must be
persons of integrity and of good credit
standing in the business community. The
subscribers must have adequate financial
strength to pay for their proposed
subscriptions in the bank.
2. The incorporators/subscribers and
proposed directors and officers must not have
been convicted of any crime involving moral
turpitude, and unless otherwise allowed
under the provisions of existing laws are not
officers or employees of a government
agency, instrumentality, department or office
charged with the supervision of, or the
granting of loans to banks.
3. A bank may be organized with not less
than five (5) nor more than fifteen (15)
incorporators. In case there are more than
fifteen (15) persons initially interested in
organizing and investing in the proposed
bank, the excess may be listed among the
original subscribers in the Articles of
Incorporation.
4. The number of members of the board
of directors of the bank shall not be less
than five (5) nor more than fifteen (15) and
shall always be in odd numbers.
5. At least two-thirds (2/3) of the
members of the board of directors of any
KB shall be Filipino citizens; at least a
directors of any TB shall be Filipino

citizens; and all members of the board of
directors of an RB shall be Filipino
citizens.
6. No appointive or elective public
official, whether full-time or part-time
shall at the same time serve as officer of a
KB or a TB except in cases where such
service is incident to financial assistance
provided by the government or a
corporation to the bank.
7. The proposed directors and officers of
the bank shall be subject to qualifications
and other requirements under Sections
X141, X142 and X143.
a. Qualifications of a director. A
director shall have the minimum
qualifications prescribed in Subsec.
X141.2. In addition, for TBs and RBs, at
least one (1) of the members of the Board
of Directors must, in addition to the
minimum qualifications, have at least one
(1) year experience in banking and/or
finance: Provided, That this requirement
may be waived if the TB or RB is to be
established in a municipality or city where
there is no existing bank.
b. Qualifications of an officer. An
officer shall have the minimum
qualifications prescribed in Subsec.
X142.2. In addition, for KBs, the president
must, in addition to the minimum
qualifications, have at least two (2) years
experience in banking and/or finance. For
TBs and RBs, any one (1) of the president,
chief operating officer or general manager
must, in addition to the minimum
experience in banking and/or finance.
c. Disqualifications of a director.
The disqualifications prescribed under
Subsec. X143.1 shall apply.
d. Disqualifications of an officer. The
disqualifications prescribed under Subsec.
X143.2 shall apply.
APP. 37
05.12.31
E. REQUIREMENTS
FOR
THE
ISSUANCE
OF AUTHORITY
TO
OPERATE
1. Within sixty (60) days from receipt of
advice of approval by the Monetary Board/
Governor of their application for authority
to establish the bank, the organizers shall:
a. Submit
the
articles
of
incorporation, treasurers sworn statement
and by-laws in seven (7) copies; and
b. Deposit with any KB (for KBs and
TBs) and any bank (for RBs) the initial paidup capital of the proposed bank.
2. Within thirty (30) days after the articles
of incorporation and by-laws had been
passed upon by the Office of the General
Counsel and the corresponding certificates
of authority to register had been issued,
the organizers shall effect the filing and
registration of said documents with the
SEC.
3. Within six (6) months (for KBs and TBs)
and eight (8) months (for RBs) from receipt
of advice of approval by the Monetary
Board/Governor of their application for
authority to establish the bank, the
organizers shall:
a. Complete the construction and
furnishing of the bank building, which shall
be equipped with vault and appropriate
security devices such as lighting system,
time delay device, tamper-resistant locks,
alarm system, etc., and provided with
furniture, fixtures, equipment and bank
forms;
b. Effect and complete the
recruitment and hiring of officers and
employees of the bank;
c. Submit
the
following
documentary requirements at least thirty
(30) days before the scheduled start of
operations:
(1) Proof of registration of articles of
incorporation and by-laws;
(2) Certification of compliance with
the conditions of approval duly signed by
the incorporators;

and their respective designations and
salaries;
(4) Bio-data sheet, evidence of
citizenship and NBI and BIR clearances
of each of the officers (who have not had
the previous approval of the Monetary
Board/Governor) which are needed for
the evaluation of their qualifications as
officers;
(5) Chart of organization (The chart
should show the names of departments/
units/offices with their respective functions
and responsibilities, and the designations
of positions in each department/unit/office
with their respective duties and
responsibilities. The internal organization
should provide for a management
structure with clear accountability, a
board of directors with ability to provide
independent check on management, and
independent audit and compliance
functions, and should follow the four
eyes principle, e.g., segregation of
various functions, cross-checking, dual
control of assets, double signatures, etc.);
(6) Manual of operations embodying
the policies and operating procedures of
each department/unit/office, covering
such areas as signing/delegated
authorities, etc. (for KBs and TBs);
(7) Plantilla showing the positions
with corresponding salaries, the total of
which should more or less conform with
the amount of salaries shown in the
submitted projected statement of earnings
and expenses;
(8) Two (2) sets of specimens of
principal bank accounting and other forms;
(9) Bond policy on officers and
custodial employees;
(10) Insurance policy on bank
properties required to be insured;
(11) Blueprint of floor layout of bank
premises;
(12) Contract of lease on banks
premises, if the same are to be leased;
APP. 37
05.12.31
(13) Excerpts of the minutes of the

organizational meetings confirming all
organizational and pre-opening transactions
relative to activities undertaken to prepare
the bank to operate (such as appointment
of officers, contract of lease, etc.);
(14) An alphabetical list of stockholders
stocks owned by them;
(15) A separate list containing the
names of persons who own voting stocks
in banks and who are related to each other
within the third (3 rd ) degree of
consanguinity or affinity, with proper
indication of the combined percentage of
voting stocks held by them in the particular
bank, as well as corporations which are
wholly-owned or a majority of the stock of
which is owned by any of such persons,
including their wholly- or majority-owned
subsidiaries;
(16) Certification by the President that no
person who is the spouse or relative within
the second (2nd) degree of consanguinity
or affinity of any person holding the position
of Chairman, President, Executive VicePresident or any position of equivalent
rank, General Manager, Treasurer, Chief
Cashier or Chief Accountant will be
bank;
(17) Appointment of an officer of the
proposed bank who shall have undergone
orientation on the reportorial requirements
with the Department of Thrift Banks and
Non-Banks Financial Institutions (DTBNBFI),
and a certification by the Manager that he is
fully aware of said reportorial requirements
and the respective deadlines for submission

to the BSP (for TBs); and
(18) Other documents/papers which
may be required.
d. File with SRSO a request for
ocular inspection of the bank premises at
least thirty (30) days before the scheduled
start of operation.
F. INAUGURATION/OPENING OF
THE BANK FOR BUSINESS AFTER THE
CERTIFICATE OF AUTHORITY TO
OPERATE HAS BEEN ISSUED
G. REQUIREMENTS WITHIN THIRTY
(30) DAYS AFTER FIRST DAY OF
OPERATIONS
1. Inform the BSP of the first day of
operation and the banking hours and days;
and
2. Submit a statement of condition as of
the first day of operation.
H. REVOCATION OF AUTHORITY TO
ESTABLISH A BANK
The authority to establish a bank shall
be automatically revoked if the bank is not
organized and opened for business within
six (6) months (for KBs and TBs) and eight
(8) months (for RBs) after receipt by the
organizers of the notice of approval by the
Monetary Board/Governor of their
application. Extension may be granted
upon presentation of justifiable reason
for failure to open the bank within the
prescribed period, and proof that the
bank can be opened within the
extension period.
APP. 38
06.12.31
REVISED GUIDELINES FOR THE

ESTABLISHMENT OF COOPERATIVE BANKS
Pursuant to Monetary Board
Resolution No. 1244 dated 28 August
2003, the Revised Guidelines for the
Establishment of Cooperative Banks is
hereby issued, as follows:
Section 1 Cooperative defined. A
cooperative is a duly registered
association of persons with a common
bond of interest, who have voluntarily
joined together to achieve a lawful
common social or economic end, making
equitable contributions to the capital
required and accepting a fair share of the
risks and benefits of the undertaking in
accordance with universally-accepted
cooperative principles.
For purposes of these regulations, all
cooperative organizations registered or
re-registered with the Cooperative
Development Authority (CDA) under R.A.
No. 6938 shall be considered
cooperatives.
Sec. 2 Organizers of Coop Banks
Only duly established cooperatives and
federations of cooperatives which are
registered or re-registered with the CDA
under R.A. No. 6938 may become
members/organizers of Coop Banks
organized in accordance with the
provisions of these guidelines. At least
fifteen (15) such cooperatives organized
in the province applied for may form and
operate a Coop Bank.
Sec. 3 Registration requirements. A
prospective Coop Bank shall file its
application for licensing as a bank with
the BSP and, upon approval, shall be
registered with the CDA.
Sec. 4 Application documents. Duly

registered cooperatives applying for authority
to establish a Coop Bank shall submit the
following documents to the Central
Applications and Licensing Group (CALG):
a. Certificate of registration or reregistration with the CDA;
b. Board resolution authorizing the
investment of the cooperative to the Coop
Bank;
c. Board resolution appointing/
designating the authorized representative
of the cooperative to the Coop Bank. The
authorized representative must either be
the chairman, president or secretary of the
cooperative;
d. Latest AFS of the cooperatives;
e. Articles of Cooperation, Treasurers
Sworn Statement and By-Laws of the
proposed Coop Bank in six (6) copies;
f. Certificate of Good Standing of each
cooperative from the CDA;
g. Bio-data, accomplished in the
prescribed form under oath and in triplicate,
by each of the authorized representatives
of the cooperative-members, and proposed
members of the board of directors and
officers of the Coop Bank;
h. NBI/BIR clearances of the
authorized representatives of the
cooperative members and proposed
members of the board of directors and
officers of the Coop Bank;
i. Latest statement of assets and
liabilities of authorized representatives
which must be not earlier than ninety (90)
days from date of application;
j. Projected monthly financial
statements for the first three (3) years of
operations which must be supported by the
following:
APP. 38
06.12.31
1. reasonable assumptions;
2. plantilla of organization including
the estimated salaries and allowances of
the officers and employees, as well as the
members of the board of directors;
3. schedule of proposed banking
premises, furniture, fixtures and
equipment indicating their estimated cost;
and
4. such other information as may be
necessary.
k. Detailed plan of operations which
should include the following minimum
information:
1. marketing plan describing how the
bank expects to generate viable and
sustainable business;
2. description of how the bank will
be organized and controlled internally to
ensure that an appropriate system of
corporate governance will be in place; and
3. adequate operational policies and
procedures, internal control procedures
and management expertise to operate
the proposed bank in a safe and sound
manner.
l. Economic justification. The
economic justification for establishing the
bank should provide information on the
economic profile of the proposed area of
operation, i.e., whether it is industrial,
agricultural, etc., number of existing
business establishments, population,
expected competition and such other
relevant information.
Sec. 5
Limitation
on
the
establishment of Coop Bank. Only one
Coop Bank shall be established in each
province, which must be located in a place
accessible to the public. However, a
second Coop Bank may be allowed to be
established in a province: Provided, That
it shall be located in a city or municipality
other than the city or municipality where
the first Coop Bank is located.
Sec. 6 Limitation on capital

contribution of cooperatives. Capital
contributions in a Coop Bank shall be as
widely dispersed as possible. No
cooperative member shall own or control
more than forty percent (40%) of the total
capital contributions of a Coop Bank. This
limitation shall also apply to cooperatives
purchasing government-held preferred
shares of Coop Banks which are converted
into common stock.
Sec. 7 Capitalization. Coop Banks
shall have the following minimum
capitalization (Private Paid-in Capital)1:
National Coop Bank

Local Coop Bank:
To be established in Metro Manila
To be established in the Cities of
Cebu and Davao
To be established in other places
2nd Coop Bank to be established
within the province
Amount
(In Millions)
P20
P20
P10
P 5
P 5
Sec. 8 Members of the board of

directors. The number of members of the
board of directors of a Coop Bank shall
not be less than five (5) nor more than
fifteen (15) which shall at all times be in
odd numbers and at least two (2) of whom
shall be independent directors. These
directors shall come from the ranks of the
authorized representatives of the
cooperative-member. For this purpose,
an independent director shall mean a
director who is not an officer or employee
of the Coop Bank.
Sec. 9 Qualifications
and
disqualifications of officers and
directors. Officers, such as president,
vice-president, manager, treasurer,
cashier and accountant and directors of the
Coop Bank must possess the qualifications
and none of the disqualifications
Required under Subsec. X106.1
APP. 38
06.12.31
prescribed under the attached Annex A

(Instructions for Directors and Officers of
Proposed Cooperative Banks).
Sec. 10 Limitation on officership/
directorship. Any officer or employee of
the CDA shall be disqualified to be elected
or appointed to any position in a Coop
Bank. Elective officials of the government
except barangay officials, shall also be
ineligible to become officers and directors
of Coop Banks.
Sec. 11 Pre-operating requirements
a. Within eight (8) months from
receipt of advice of approval of the
Monetary Board of its application, the
proposed Coop Bank shall:
1. Complete the construction and
furnishing of the bank building which shall
be equipped with facilities, furniture, forms
and stationery, and vault of reinforced
concrete with a steel two (2)-hour fire
resistant door and equipped with time
delay device, in accordance with the
specifications of the BSP;
2. Effect and complete the training/
seminar of directors, officers and
employees of the Coop Bank; and
3. Inaugurate and open the Coop Bank
for business.
b. At least thirty (30) days prior to the
start of operations, the Coop Bank shall
submit the following requirements
1. Certification of compliance with
the conditions of approval of the
applications duly signed by the cooperators;
2. Proof of registration of Articles of
Cooperation, Treasurers Sworn Statement
and By-Laws of the Bank;
3. Certificate of deposits of the banks
paid-in capital;
4. Request for ocular inspection of the
bank premises at least thirty (30) days
before the scheduled date of operations;
5. Certificates of training/seminar of
officers and employees;
6. Certificates of attendance of the

special seminar for members of the board
of directors conducted or accredited by
the BSP;
7. List of principal and junior officers
and their respective designations and
salaries;
8. Bio-data
sheets,
NBI/BIR
clearances, statement of assets and
liabilities, ITRs and statement of income
and expenses for the last three (3) years
of directors/officers who have not had the
previous approval of the Monetary Board,
for evaluation of their qualifications prior
to their appointment;
9. Chart of organization. The chart
should show the names of departments/
units/offices with their respective
functions and responsibilities, and the
designations of positions in each
department/unit/office with their
respective duties and responsibilities.
The internal organization should
provide for a management structure with
clear accountability, a board of directors
with ability to provide independent check
on management and independent audit
and compliance functions, and should
follow the four eyes principle, i.e.,
segregation of various functions, cross
checking, dual control of assets, double
signatures;
10. Manual of Operations embodying
the policies and operating procedures of
each department/unit/office covering
such areas as signing/delegated
authorities;
11. Two (2) sets of specimens of
principal bank accounting and other forms;
12. Blueprint of floor layout of bank
premises;
13. Contract of lease on banks
premises, if the same are to be leased;
14. Insurance coverage of bank
properties;
15. Fidelity bonds of accountable
officers;
APP. 38
06.12.31
16. Excerpts of the minutes of the

organizational meetings confirming all
organizational and
pre-opening
transactions relative to activities
undertaken to prepare the bank to operate
(such as appointment of officers, contract
of lease, etc.);
17. An alphabetical list of stockholders
stocks owned by them;
18. A separate list containing the names
of persons who own voting stocks in banks
and who are related to each other within
the 3rd degree of consanguinity or affinity,
with proper indication of the combined
percentage of voting stocks held by them
in the particular bank, as well as
corporations which are wholly-owned or a
majority of the stock of which is owned by
any of such persons, including their wholly
or majority-owned subsidiaries;
19. Certification by the president or
officer of equivalent rank that no person
who is the spouse or relative within the 2nd
accountant will be appointed to any of said
positions in the bank;
20. Appointment of an officer of the
proposed bank who shall have undergone
orientation on the reportorial requirements
with the BSP and a certification by the
manager that he is fully aware of said
reportorial requirements and the respective
deadlines for submission to the BSP;
21. A certification by the PDIC that the
organizers had already been briefed on all
of its requirements for newly established
banks; and
22. Other documents/papers which

may be required.
Sec. 12 Training of personnel,
directors and officers. The following
personnel of the Coop Bank as well as the
directors and officers are required to
undergo training at the Bangko Sentral ng
Pilipinas Institute:
a. The manager who must possess
the qualifications and none of the
disqualifications as enumerated in the
attached Annex A.
b. The cashier who must also possess
the qualifications and none of the
disqualifications as enumerated in the
attached Annex A.
c. The bookkeeper who must be at
least twenty one (21) years old, a college
degree holder, and must have at least
eighteen (18) units in accounting.
d. The field inspector-appraiser who
must be at least twenty (21) years old, at
least a high school graduate, and must
have knowledge/experience in farming,
preferably an Agriculture graduate.
Sec. 13 Validity period of authority
to operate the Coop Bank. The Coop
Bank shall be organized and opened for
business within eight (8) months upon
receipt by the proposed Coop Bank of the
notice of approval of its application by the
Monetary Board, otherwise, the authority
to operate shall be deemed automatically
revoked.
Sec. 14 These rules and regulations
supersede the Guidelines for the
Organization of Rural Banks by
Cooperatives approved under M.B.
Resolution No. 1155, dated 6 October 1990.
APP. 38
06.12.31
Annex A
INSTRUCTIONS FOR DIRECTORS AND OFFICERS
OF PROPOSED COOPERATIVE BANKS
The term officers shall include the
president, senior vice-president, vice
president, manager, secretary, cashier, and
others mentioned as officers of the bank,
or those whose duties as such are defined
in the by-laws, or are generally known to
be the officers of the bank (or any of its
branches and offices other than the head
office) either thru announcement,
representation, publication or any kind of
communication made by the bank.
The term directors shall include: (1)
directors who are named as such in the
Articles of Cooperation; (2) directors duly
elected in subsequent meetings of
authorized representative of each
cooperative-member, and (3) those elected
to fill vacancies in the board of directors.
The following are the qualifications and
disqualifications of directors and officers of
Coop Banks:
1. Qualifications for directors.
A
director must have the following minimum
qualifications:
(a) He shall be at least twenty-five (25)
years of age at the time of his election or
appointment;
(b) He shall be at least a college
graduate or have at least five (5) years
experience in business;
(c) He must have attended a special
seminar for board of directors conducted
or accredited by the BSP within a period
of six (6) months from the date of his
election; and
(d) He must be fit and proper for the
position of a director of the Coop Bank. In
determining whether a person is fit and
proper for the position of a director, the
- integrity/probity;
- competence;
- education;
- diligence; and
- experience/training.
At least one (1) of the members of the
board of directors must, in addition to the
above-mentioned minimum qualifications,
have at least one (1) year experience in
banking.
directors shall be in addition to those
already required or prescribed under
existing laws.
2. Persons disqualified to become
directors. Without prejudice to specific
provisions
of
law
prescribing
disqualifications for directors, the following
persons are disqualified from becoming
directors:
(a) Permanently disqualified
Board from holding a director position:
by final judgment of the court for offenses
involving dishonesty or breach of trust such
as estafa, embezzlement, extortion,
forgery, malversation, swindling and theft;
by final judgment of the court for violation
of banking laws;
(3) Persons who have been judicially
declared insolvent, spendthrift or
incapacitated to contract; or
(4) Directors, officers or employees of
closed banks/QBs/trust entities who were
responsible for such institutions closure as
(b) Temporarily disqualified
disqualified by the Monetary Board from
holding a director position for a specific/
indefinite period of time. Included are:
APP. 38
06.12.31
(1) Persons who refuse to fully disclose

the extent of their business interest to the
appropriate department of the SES when
required pursuant to a provision of law or
of a circular, memorandum or rule or
regulation of the BSP. This disqualification
shall be in effect as long as the refusal persists;
(2) Directors who have been absent or
who have not participated for whatever
reasons in more than fifty percent (50%) of
all meetings, both regular and special, of
the board of directors during their
incumbency, or any twelve (12) month
period during said incumbency. This
disqualification applies for purposes of the
succeeding election;
(3) Persons who are delinquent in the
payment of their obligations as defined
hereunder:
(a) Delinquency in the payment of
obligations means that an obligation of a
person with a bank/QB/trust entity where
he/she is a director or officer, or at least
two obligations with other banks/FI,
under different credit lines or loan
contracts, are past due pursuant to Sec.
X306 of the MORB and Sec. 4308Q of
the MORNBFI;
(b) Obligations shall include all
borrowings from a bank/QB obtained by:
(i) A director or officer for his own
account or as the representative or agent
of others or where he/she acts as a
guarantor, endorser, or surety for loans from
such FIs;
(ii) The spouse or child under the
parental authority of the director or officer;
(iii) Any person whose borrowings or
loan proceeds were credited to the account
of, or used for the benefit of a director or
officer;
(iv) A partnership of which a director
or officer, or his/her spouse is the managing
partner or a general partner owning a
controlling interest in the partnership; and
(v) A corporation, association or firm
wholly-owned or majority of the capital of
which is owned by any or a group of

persons mentioned in the foregoing Items
"i", "ii" and "iv";
This disqualification shall be in effect
as long as the delinquency persists.
(4) Persons convicted for offenses
involving dishonesty, breach of trust or
violation of banking laws but whose
conviction has not yet become final and
executory;
(5) Directors and officers of closed
banks/QBs/trust entities pending their
clearance by the Monetary Board;
(6) Directors disqualified for failure to
observe/discharge their duties and
responsibilities prescribed under existing
regulations. This disqualification applies
until the lapse of the specific period of
disqualification or upon approval by the
Monetary Board on recommendation by
such directors election/reelection;
(7) Directors who failed to attend the
special seminar for board of directors
required under Item "3" of Subsec. X141.2
of the MORB or Subsec. 4141Q.2 of the
MORNBFI. This disqualification applies
until the director concerned had attended
such seminar;
(8) Persons dismissed/terminated from
employment
for
cause.
This
disqualification shall be in effect until they
have cleared themselves of involvement
in the alleged irregularity;
(9) Those
under
preventive
suspension; or
(10) Persons with derogatory records
with the NBI, court, police, Interpol and
monetary authority (central bank) of other
countries (for foreign directors and officers)
involving violation of any law, rule or
regulation of the government or any of its
instrumentalities adversely affecting the
integrity and/or ability to discharge the
duties of a bank/QB/trust entity director/
officer. This disqualification applies until
APP. 38
06.12.31
they have cleared themselves of

involvement in the alleged irregularity.
3. Qualification for officers
(a) He shall be at least twenty-one (21)
years of age;
(b) He shall be at least a college
graduate, or have at least five (5) years
experience in banking or trust operations or
related activities or in a field related to his
position and responsibilities, or have
undergone training in banking acceptable to
the appropriate department of the SES; and
(c) He must be fit and proper for the
position he is being proposed/appointed
to. In determining whether a person is fit
and proper for a particular position, the
- integrity/probity;
- competence;
- education;
- diligence; and
- experience/training.
Any one of the president, chief
operating officer or general manager of a
national Coop Bank must, in addition to
the
abovementioned
minimum
actual banking experience in a senior
management capacity (head or assistant
head) while the manager of a local Coop
Bank must have actual banking experience
(at least manager or assistant manager).
The foregoing qualifications for officers
shall be in addition to those already
required or prescribed under existing laws.
4. Persons disqualified to become
officers. The grounds for disqualification for
directors shall likewise apply to officers,
except that stated in Items "2.b.2" and "2.b.7".
(a) Except as may be authorized by the
Monetary Board or the Governor, the
spouse or a relative within the second
accountant is disqualified from holding or

being elected or appointed to any of said
positions in the same bank; and the spouse
or relative within the second degree of
consanguinity or affinity of any person
holding the position of manager, cashier,
or accountant of a branch or office of a bank
is disqualified from holding or being
same branch or office.
(b) Any officer or employee of the
CDA or any appointive or elective public
official, except a barangay official;
(c) Except as may otherwise be
allowed under C.A. No. 108, otherwise
known as The Anti-Dummy Law, as
amended, foreigners cannot be officers or
employees of a Coop Bank.
The foregoing disqualifications for
officers shall be in addition to those already
required or prescribed under existing laws.
5. Government
officers
and
employees.
Any officer or employee of the CDA
shall be disqualified to be elected or
appointed to any position in a cooperative;
and (2) elective officials of the government,
except barangay officials, shall be
ineligible to become officers and directors
of cooperatives.
However, any government employee
may, in the discharge of his duties as
member in the cooperative, be allowed by
the head office concerned to use official
time for attendance at the general
assembly, board and committee meetings
of cooperatives as well as cooperative
seminars, conferences, workshops,
technical meetings, and training courses
locally or aboard: Provided, That the
operations of the office concerned are not
adversely affected.
Unless otherwise provided, officers
elected or appointed without possessing
the qualifications or possessing any of the
disqualifications as enumerated herein,
shall vacate their respective positions
immediately.
APP. 39
05.12.31
SETTLEMENT OF INTERBANK TRANSACTIONS VIS--VIS COVERING RESERVE

REQUIREMENT/DEFICIENCY OF BANKS DDA WITH BSP
TIME
Philippine Clearing
House Corporation (PCHC)
METRO MANILA
ACTIVITIES
DAY 1
BSP
Regional Clearing
Centers (BSP RCC)
2:00 PM
4:00 PM
6:00 PM
Clearing Results Available

(Regional Local and
Inter-Regional)
Clearing Results Available
(Greater Manila and ManilaRegional Outward Clearing)
6:30 PM
8:31 AM
9:29 AM Returned
9:30 AM COCI
Processing
Returned COCI
Clearing Results
10:00 AM Available (BSP)
11:00 AM
2:01 PM
3:00 PM
4:00 PM
Value Date
T+O
T+O
Update Banks
DDA Balances
Returned COCI
Exchange
Returned COCI Clearing
Results Available (BSP)
Receiving
Processing
of Interbank
Call Loan
Transactions
11:30 AM
2:00 PM
(Begin-of-day) Final
Banks DDA balance
Cut-off Time
Submission of
Financial Transactions
Affecting BSP
Update Banks DDA
Balances for EFTIS
Transactions
Update Banks DDA
Balances
1st Broadcast Banks
DDA Balance
DAY
2
Interbank
Returned COCI Call Loan (IBCL)
Returned
CLEARING
Window
COCI CLEARING
7:30 AM Returned COCI
8:00 AM Receiving
Returned COCI
8:30 AM Window
Receiving Window
12:30 PM
1:00 PM

Head Office
(BSP)
Update Banks DDA

(Returned COCI Clearing
Results)
2nd Broadcast Updated
Banks DDA
Balance
IBCL Netting
Operation
IBCL Results
Available
Update Banks DDA
(BSP)
(IBCL Results)
(End-of-Day) Final Banks (T + O) DDA Balance UNLESS
BSP Decides to "UNWIND" IBCL Transactions
Unwinding Operation Window
Selective Broadcast of Final
DDA Balances for
"Unaffected Banks
Unwinding Process
(Affected Banks Only)
Broadcast affected Banks
Final DDA Balances
T+O
T+O
T+O
T+O
T+O
APP. 40
05.12.31
GUIDELINES GOVERNING THE REDISCOUNTING

OF HOUSING LOAN PAPERS OF QUALIFIED BANKS
UNDER HUDCC PROGRAM
Section 1. Statement of Policy. The
Bangko Sentral, consistent with its primary
objective of maintaining price stability
under its charter (R.A. No. 7653), shall
comply with its mandate under Section
11(c) of R.A. No. 7835 (Comprehensive
and Integrated Shelter Financing Act) by
providing short-term rediscounting facility
to qualified banking institutions providing
financing for socialized and low-cost
housing.
Sec. 2 Criteria for Eligibility
a. Eligible Banks
KBs, TBs and RBs/Coop Banks which
are qualified to rediscount with the DLC,
under existing rules and regulations, and
with unused rediscounting ceiling at the
time of application for rediscounting can
avail themselves of this rediscounting
facility.
b. Eligible Housing Loan Paper
Housing loan papers for rediscounting
under this facility shall satisfy the following
requirements:
(1) Loan purpose and amount. The
loan shall be used for the construction of a
house/acquisition of a house and lot. The
amount of the loan shall not exceed
P180,000.00 for socialized housing and
P375,000.00 for economic housing, as
prescribed under existing guidelines of the
HUDCC for the implementation of various
government housing programs, or in such
other amounts which HUDCC may prescribe
in the future for said housing loans.
(2) Loan limit. The amount of the loan
shall not exceed the amount of amortization
covering principal payments due within one
(1) year from date of rediscount, subject to
the terms and conditions discussed in

Section 3.
(3) Security. The subject property shall
be covered by a duly registered Real Estate
Mortgage (REM) in favor of the
rediscounting bank.
Sec. 3 Terms and Conditions of
Rediscounting Availments
a. Maximum Loan Value
Banks can obtain additional availments
annually representing amortizations for the
current year against the mortgaged
property. However, total cumulative
availments for a mortgaged property shall
not exceed eighty percent (80%) of the
collateral value.
b. Interest Rate
The loan availment shall be assessed
an interest rate equivalent to the prevailing
rediscount rate at the date of rediscount:
Provided, That the banks spread shall not
exceed three percent (3%) per annum.
c. Maturity
Rediscounting availments shall be due
on demand but not beyond 360 days from
date of rediscount.
Sec. 4 Sanctions. Non-remittance or
delayed remittance within the allowable
period of the corresponding loan value of
collections on rediscounted notes shall be
considered as sufficient ground for
suspension of banks rediscounting privilege
as follows:
First offense
Second offense
Third offense
Fourth offense
-one (1) month suspension

-two (2) months suspension
-three (3) months suspension
-permanent suspension
APP. 41
05.12.31
MINIMUM CRITERIA FOR ACCREDITATION OF PARTICIPATING

FINANCIAL INSTITUTIONS (PFIs) IN GOVERNMENT BANKS
WHOLESALE LENDING PROGRAM
I. Accreditation Criteria
For accreditation purposes, PFIs shall
initially be evaluated/appraised on the basis
of the following pre-qualifying criteria:
1. The PFI shall submit a certification on
the following:
a. Compliance with the prescribed
minimum capital to risk assets ratio of ten
percent (10%), minimum capitalization,
legal and liquidity reserve requirements
for deposit liabilities, deposit substitutes,
common trust funds (CTFs) and Trust and
Other Fiduciary Accounts (TOFA)-Others,
liquidity floor requirement for government
funds held, and ceilings on credit
accommodations to directors, officers,
stockholders and their related interests
(DOSRI), for six (6) consecutive months prior
to the filing of application for accreditation.
b. As of application date, the PFI has
generally complied with the orders or
instructions of the Monetary Board and/or
BSP Management, more particularly:
(i) Set-up of the required general loan
loss and specific provisioning
requirements.; and
(ii) Correction of major violations and
previous years exceptions noted in the
latest BSP examination.
c. The PFI has no past due obligations
with the BSP or with any government
d. The PFIs accounting records,
systems, procedures and internal control
systems are satisfactorily maintained.
2. Profitability
a. For PFIs operating for more than
three (3) years as of date of filing of the
application for accreditation - Operating
profitably for three (3) consecutive years prior

b. For PFIs operating for less than
three (3) years as of date of filing of the
application for accreditation - Operating
profitably for two (2) consecutive years prior
3. Capital
Compliance with minimum capital
accounts of P400.0 million or BSP required
minimum capitalization applicable to the category
where the PFI belongs, whichever is higher.
4. Non-performing loans ratio for six (6)
consecutive months prior to the filing of
application for accreditation shall not
exceed the industry ratio which may be
obtained from the SRSO of the BSP.
5. Ownership/Management
For PFIs operating for less than three
(3) years as of date of filing of the application
for accreditation
a. Domestic bank owned by reputable
individuals/institutions and managed by
reputable and experienced bankers.
b. Philippine branch of a foreign bank
carrying an international investment grade
rating acceptable to the government bank
with foreign banks (Head Office/parent
bank) unconditional and irrevocable
guarantee on loan availments of Philippine
branch or subsidiary.
II. Grant and Renewal of Credit Lines to
Accredited PFIs
1. Government banks shall provide credit
lines for a specified term to each accredited
PFI based on the results of the quantitative
and qualitative evaluation guidelines to be
APP. 41
05.12.31
formulated in accordance with credit policies

and procedures approved by the banks Board
of Directors and/or as prescribed by the
institutions, organizations or agencies which
provide the funds.
2. PFIs shall be subject to quantitative and
qualitative evaluation as well as the
accreditation criteria when applying for

renewal of credit lines.
3. Government banks may suspend the
release of funds to PFIs that failed to meet
any of the quantitative and qualitative
evaluation guidelines and/or the accreditation
criteria.
APP. 42
05.12.31
DEED OF UNDERTAKING
FOR THE ISSUANCE OF REDEEMABLE PREFERRED SHARES
[Appendix to Subsec. X126.5a(3)(e)]
We, the majority of the members of the Board of Directors and key executive officers
of ________________________________________, a banking corporation duly registered and
organized under the laws of the Republic of the Philippines, with principal office and place
of business at ____________________________________, by these presents do hereby obligate
ourselves to undertake the following in the issuance of preferred stock:
1. That the issuance of preferred stock shall be in accordance with the terms and
conditions of approval by the Bangko Sentral ng Pilipinas (BSP) and pertinent rules and
regulations of the BSP and that of the Securities and Exchange Commission (SEC)/Cooperative
Development Auhority (CDA);
2. That any preferred shares so issued shall not be redeemed, retired, converted to
any other kind of stocks or securities or paid back in cash or property without the prior
approval of BSP in accordance with Subsections X126.5 and 3127.4 of the Manual of
Regulations for Banks, Section 8, R.A. 7353 and other applicable regulations and banking
laws;
3. That in no case shall the issuance of preferred shares be treated as similar to or as
a substitute of other form of temporary investments of clients and depositors such as time
deposits, savings deposits, money market placements or other form of investments subject to
withdrawal;
4. That outstanding preferred shares may be redeemed or retired only if the shares
redeemed or retired are replaced with at least an equivalent amount of newly paid-in shares
so that the total paid-in capital stock is maintained at the same level immediately prior to
redemption or retirement: Provided, That no outstanding preferred share shall be redeemed
within five (5) years from full payment of the subscription or issuance of stock certificate
therefor;
5. That we, the undersigned, shall ensure that the above undertakings are strictly
complied with and observed at all times by the management of the bank;
6. That non-compliance with this undertaking shall subject the directors/officers
involved liable to such administrative sanctions as the Monetary Board may impose and
such other sanctions as may be provided pursuant to Section 37 of R.A. 7653, without
prejudice to the criminal sanctions under Section 36 of the same Act.
IN WITNESS WHEREOF, we have hereunto affix our signature on this ______ day
of ____________________, 20__.
APP. 42
05.12.31
Directors:
____________________________
____________________________
____________________________
____________________________
Officers:
_____________________________
_____________________________
_____________________________
_____________________________
REPUBLIC OF THE PHILIPPINES)

PROVINCE/CITY OF
) S.S.
BEFORE ME, a Notary Public, for and in the Province/City of ______________ this
_____ day of ______________, 200_, personally appeared the herein named persons with
their Community Tax Receipts, known to me to be the same persons who executed the
foregoing instrument and acknowledged before me that the same is their own free and voluntary
act and deed.
Name
______________________
______________________
______________________
______________________
______________________
______________________
Comm.
Tax Cert.
No.
________
________
________
________
________
________
Date of Issue
________________
________________
________________
________________
________________
________________
Place of Issue
__________________
__________________
__________________
__________________
__________________
__________________
IN WITNESS WHEREOF, I have hereunto set my hand and seal on the date and place
above written.
Notary Public
Until December 31, 20___
PTR No. ______________
Issued at _________on __________
Doc. No.
Page No.
Book No.
Series of
__________;
__________;
__________;
__________.
APP. 43
06.12.31
GUIDELINES TO GOVERN THE SELECTION, APPOINTMENT AND THE

REPORTING REQUIREMENT FOR EXTERNAL AUDITORS OF BANKS
A. GENERAL REQUIREMENTS
Only external auditors included in the
list of BSP selected external auditors shall
be engaged by banks, for regular audit or
special engagements. The external auditor
to be hired shall also be in-charge of the
audit of the entitys subsidiaries and affiliates
engaged in allied activities: Provided, That
the external auditor shall be changed or the
lead and concurring partner shall be rotated
every five (5) years or earlier: Provided,
further, That the rotation of the lead and
concurring partner shall have an interval of
at least two (2) years.
Banks which have engaged their
respective external auditors for a
consecutive period of five (5) years or more
as of 26 November 2003 (effectivity of
Circular No. 410) shall have a one (1) year
period from said date within which to either
change their external auditors or rotate the
lead and/or concurring partner. The
following are the selection requirements for
external auditors:
1. No external auditor may be engaged
by a bank if he or any member of his
immediate family has or has committed to
acquire any direct or indirect financial
interest in the bank, its subsidiaries and
affiliates, or if his independence is
considered impaired under the
circumstances specified in the Code of
Professional Ethics for CPAs. In the case
of a partnership, this limitation shall apply
to the partners, associates and the auditorin-charge of the engagement and
members of their immediate family;
2. The external auditor and the
members of the audit team do not have/shall
not have outstanding loans or any credit
accommodations (except credit card
obligations which are normally available

to other credit card holders and fully
secured auto loans and housing loans
which are not past due) with the bank, its
subsidiaries and affiliates at the time of
signing the engagement and during the
engagement. In the case of partnership,
this prohibition shall apply to the partners
and the auditor-in-charge of the
engagement;
3. The external auditor must not be
currently engaged nor was engaged during
the preceding year in providing the following
services to the bank, its subsidiaries and
affiliates:
a. Internal audit functions;
b. Information systems design,
implementation and assessment; and
c. Such other services which could
affect his independence as may be
determined by the Monetary Board;
4. The external auditor, auditor-incharge and members of the audit team must
adhere to the highest standards of
professional conduct and shall carry out
services in accordance with relevant ethical
and technical standards, such as the
Generally Accepted Auditing Standards
(GAAS) and the Code of Professional Ethics
for CPAs;
5. The external auditor should have
the following track record in conducting
external audits:
a. The external auditor for a UB or KB
must have at least twenty (20) existing
corporate clients with resources of at least
P50.0 million each and at least one (1)
existing client UB or KB in the regular audit
or in lieu thereof, the external auditor or
the auditor-in-charge of the engagement
must have at least five (5) years experience
in the regular audit of UBs or KBs;
APP. 43
06.12.31
b. The external auditor for a TB and

national Coop Bank must have at least ten
(10) existing corporate clients with resources
of at least P25.0 million each and at least
one (1) existing client TB, QB, trust entity
or national Coop Bank in the regular audit
or in lieu thereof, the external auditor or
the auditor-in-charge of the engagement
must have at least five (5) years experience
in the regular audit of TBs, QBs, trust
entities or national Coop Banks: Provided,
That an external auditor who has been
selected by the BSP to audit a UB or KB is
automatically qualified to audit a TB or
national Coop Bank; and
c. The external auditor for an RB or
local Coop Bank must have at least three
(3) years track record in conducting external
audit: Provided, That an external auditor
who has been selected by the BSP to audit
a UB, KB, TB, QB, trust entity and national
Coop Bank is automatically qualified to
audit an RB, local Coop Bank;
6. A bank shall not engage the services
of an external auditor whose partner or
auditor-in-charge of audit engagement
during the preceding year had been hired
or employed by the bank, its subsidiaries
and affiliates as chief executive officer,
chief financial officer, controller, chief
accounting officer or any position of
equivalent rank; and
7. The external auditor must undertake
to keep for at least five (5) years all audit or
review working papers in sufficient detail
to support the conclusions in the audit
report which shall be made available to the
BSP upon request. Working papers shall
include, but shall not be limited to, pre-audit
analysis, audit scope and detailed work
program.
B. APPLICATION
AND
PREQUALIFICATION REQUIREMENTS
The application for BSP selection shall
be signed by the external auditor or the
managing partner, in case of partnership

and shall be submitted to the appropriate
department of the SES together with the
following documents/information:
1. An undertaking:
a. That the external auditor, partners,
associates, auditor-in-charge of the
engagement and the members of their
immediate family shall not acquire any
direct or indirect financial interest with the
bank, its subsidiaries and affiliates. Neither
shall the external auditor, partners,
associates and auditor-in-charge accept an
audit engagement with a bank, its
subsidiaries and affiliates where they or
any member of their immediate family
have any direct or indirect financial interest
and that their independence is not
considered impaired under the
circumstances specified in the Code of
Professional Ethics for CPAs;
b. That the external auditor, partners,
associates, auditor-in-charge and members
of the audit team do not have nor shall
apply for loans or any credit
accommodations (except normal credit
card obligations and fully secured auto
loans and housing loans) nor shall accept
an audit engagement with a bank, its
subsidiaries and affiliates where they have
outstanding loans or any credit
accommodations (except normal credit
card obligations and fully secured auto
loans and housing loans which are not past
due);
c. That the external auditor shall not
accept an audit engagement with a bank,
its subsidiaries and affiliates where he was
engaged during the preceding year in
providing the following services:
(1) Internal audit functions;
(2) Information systems design,
implementation and assessment; and
(3) Such other services, which could
affect his independence as may be
determined by the Monetary Board from
time to time.
APP. 43
06.12.31
This requirement shall not, however,

affect audit engagement existing as of
26 November 2003 (effectivity of Circular
No. 410).
d. That the external auditor and
members of the audit team shall adhere to
the highest standards of professional
conduct and shall carry out their services
in accordance with relevant ethical and
technical standards of the accounting
profession;
e. That the lead or concurring partner
and auditor-in-charge shall not accept
employment with the bank, its subsidiaries
and affiliates being audited during the
engagement period and within a period of
one (1) year after the audit engagement;
f. That the external auditor shall not
accept an audit engagement with a bank,
its subsidiaries and affiliates where an
officer (i.e., chief executive officer, chief
financial officer, controller, chief
accounting officer or other senior officer
of equivalent rank) had been a partner of
the external auditor or had worked for the
audit firm and had been the auditor-incharge of the audit engagement of said
entities during the year immediately
preceding the engagement;
g. That the external auditor shall keep
all audit or review working papers for at
least five (5) years in sufficient detail to
support the conclusions in the audit report;
and
h. That the audit work shall include
assessment of the audited institutions
compliance with BSP rules and regulations,
such as, but not limited to the following:
(1) CAR; and
(2) Loans and other risk assets review
and classification.
2. Other documents/information:
a. List of existing corporate clients
with resources of at least P50.0 million
each for external auditor of a UB or KB; for
a TB and national Coop Bank, list of existing
corporate clients with resources of at least
P25.0 million each; and list of existing
clients and/or details of three (3) years track

record in external audit for external auditors
of an RB and a local Coop Bank;
b. If the external auditor for a UB or
KB has no existing UB or KB client, and
the external auditor for a TB and national
Coop Bank, has no existing client TB or
national Coop Bank, a notarized certification
that the external auditor or the auditor-incharge of the engagement has at least five
(5) years experience in the regular audit of
banks of appropriate category mentioning
the banks they have audited;
c. Updated PRC license (for individual
auditors) and business license for the
partnership;
d. Copy of the proposed engagement
contract between the bank and the external
auditor where applicable; and
e. Certification from PRC that the
external auditor, lead partner, concurring
partner, auditor-in-charge and members of
the audit team have no derogatory
information, previous conviction or any
pending investigation. However, in the
event that the certification cannot be
obtained because of the pendency of a case,
the BSP may dispense with this
requirement upon determination by the
Monetary Board that the case involves
purely legal question, or does not, in any
way, negate the auditors adherence to the
highest standards of professional conduct
nor degrade his integrity and objectivity.
C. REQUIRED REPORTS
1. To enable the BSP to take timely
and appropriate remedial action, the
external auditor must report to the BSP
within thirty (30) calendar days after
discovery, the following cases:
a. Any material finding involving fraud
or dishonesty (including cases that were
resolved during the period of audit); and
b. Any potential losses the aggregate
of which amounts to at least one percent
(1%) of the capital.
APP. 43
06.12.31
2. The external auditor shall report

directly to the BSP within fifteen (15) calendar
days the occurrence of the following:
a. Termination or resignation as external
auditor and stating the reason therefor;
b. Discovery of a material breach of
laws or BSP rules and regulations such as,
but not limited to:
(1) CAR; and
(2) Loans and other risk assets review
and classification.
c. Findings on matters of corporate
governance that may require urgent action
by the BSP.
3. In case there are no matters to
report (e.g. fraud, dishonesty, breach of
laws, etc.) the external auditor shall submit
directly to the BSP within fifteen (15)
calendar days after the closing of the audit
engagement a notarized certification that
there is none to report.
The management of the bank, its
subsidiaries and affiliates shall be informed
of the adverse findings and the external
auditors report to the BSP shall include its
explanation and/or corrective action.
The management of the bank, its
subsidiaries and affiliates shall be given the
opportunity to be present in the discussions
between the BSP and the external auditor
regarding the audit findings, except in
circumstances where the external auditor
believes that the entitys management is
involved in fraudulent conduct.
It is, however, understood that the
accountability of an external auditor is
based on matters within the normal
coverage of an audit conducted in
accordance with generally accepted
auditing standards.
D. DEFINITION OF TERMS
For purposes of these guidelines, the
following terms shall be defined as follows:
1. Subsidiary. A corporation or firm
more than fifty percent (50%) of the
or indirectly owned, controlled or held

with power to vote by a bank.
2. Affiliate. A corporation, not more
than fifty percent (50%) but not less than
ten percent (10%) of the outstanding voting
stock of which is directly or indirectly
owned, controlled or held with power to
vote by a bank, and a juridical person that
is under common control with the bank.
3. Control. Exists when the parent
owns directly or indirectly more than one
half of the voting power of an enterprise
unless, in exceptional circumstance, it can
be clearly demonstrated that such
ownership does not constitute control.
Control may also exist even when
ownership is one half or less of the voting
a. Power over more than one-half of
with other stockholders;
b. Power to govern the financial and
statute or an agreement;
c. Power to appoint or remove the
directors or equivalent governing body;
d. Power to cast the majority votes at
e. Any other arrangement similar to
any of the above.
4. Associate. Any director, officer,
manager or any person occupying a similar
status or performing similar functions in the
audit firm including employees performing
supervisory role in the auditing process.
5. Partner. All partners including those
not performing audit engagements.
6. Lead Partner. Also referred to as
the engagement partner/partner-in-charge/
managing partner who is responsible for
signing the audit report on the
consolidated financial statements of the
audit client, and where relevant, the
individual audit report of any entity whose
financial statements form part of the
consolidated financial statements.
APP. 43
06.12.31
7. Concurring Partner. The partner who

is responsible for reviewing the audit report.
8. Auditor-in-charge. Refers to the
team leader of the audit engagement.
E. INCLUSION IN BSP LIST
In case of partnership, inclusion in the
list of BSP selected external auditors shall
apply to the audit firm only and not to the
individual signing partners or auditors under
its employment. The BSP will circularize
to all banks the list of selected external
auditors once a year. The BSP, however,
shall not be liable for any damage or loss
that may arise from its selection of the
external auditors to be engaged by banks
for regular audit or special engagements.
F. SPECIFIC REVIEW
When warranted by supervisory
concern, the Monetary Board may, at the
expense of the bank, its subsidiaries and
affiliates require the external auditor to
undertake a specific review of a particular
aspect of the operations of these institutions.
The report shall be submitted to the BSP and
the audited institution simultaneously, within
thirty (30) calendar days after the conclusion
of said review.
G. AUDIT ENGAGEMENT CONTRACT
Banks shall submit the audit engagement
contract between them, their subsidiaries
and affiliates and the external auditor to the
fifteen (15) calendar days from signing
thereof. Said contract shall include the
following provisions:
1. That the bank shall be responsible
for keeping the auditor fully informed of
existing and subsequent changes to
prudential, regulatory and statutory
requirements of the BSP and that both
parties shall comply with said
requirements;
2. That disclosure of information by

the external auditor to the BSP as required
under Items "C" and "F" hereof, shall be
allowed; and
3. That both parties shall comply with
all of the requirements under these
guidelines.
H. DELISTING
AUDITORS
OF
EXTERNAL
1. Grounds for delisting

External auditors may be delisted from
the list of BSP selected external auditor for
the bank, for violation of, or non-compliance
with any provision of these guidelines or
in case of dissolution of the audit firm
except when said dissolution was solely for
the purpose of admitting new partner/s and
the new partner/s have complied with the
requirements of these guidelines.
2. Procedure for delisting
An external auditor shall only be
delisted upon prior notice to him and after
giving him the opportunity to be heard and
defend himself by presenting witnesses/
evidence in his favor. Delisted external
auditor may re-apply for BSP selection after
the period prescribed by the Monetary
Board.
I.
AUDIT BY
DIRECTORS
THE
BOARD
OF
Pursuant to Section 58 of R.A. No. 8791,

otherwise known as The General Banking
Law of 2000 the Monetary Board may also
direct the board of directors of a bank or
the individual members thereof, to conduct,
either personally or by a committee created
by the board, an annual balance sheet audit
of the bank to review the internal audit and
the internal control system of the
concerned entity and to submit a report of
such audit to the Monetary Board within
thirty (30) calendar days after the conclusion
thereof.
(As amended by Circular No. 529 dated 11 May 2006)
APP. 44
05.12.31
IMPLEMENTING RULES AND REGULATIONS OF REPUBLIC

ACT NO. 6848 (THE ISLAMIC BANK CHARTER)
Pursuant to Section 43 of R.A. No.
6848, otherwise known as The Charter
of the Al-Amanah Islamic Investment Bank
of the Philippines, the Monetary Board, in
its Resolution Nos. 161 and 244 dated 14
February and 6 March 1996, respectively,
approved the following Implementing Rules
and Regulations:
Section 1. Domicile and Place of Business
The principal domicile and place of
business of the Al-Amanah Islamic
Investment Bank of the Philippines,
hereinafter called the Islamic Bank, shall be
in Zamboanga City. It may establish
branches, agencies or other offices at such
places in the Philippines or abroad subject
to applicable laws, rules and regulations of
the BSP.
Sec. 2. Purpose and Basis
The primary purpose of the Islamic
Bank shall be to promote and accelerate the
socio-economic development of the
Autonomous Region by performing
banking, financing and investment
operations and to establish and participate
in agricultural, commercial and industrial
ventures based on the Islamic concept of
banking.
All business dealing sand activities of
the Islamic Bank shall be subject to the basic
principles and rulings of Islamic Sharia
within the purview of the aforementioned
declared policy. Any zakat or tithe paid
by the Islamic Bank on behalf of its
shareholders and depositors shall be
considered as part of compliance by the
Islamic bank with its obligation to
appropriate said zakat fund and to disburse
it in legitimate channels to be ascertained
first by the Sharia Advisory Council.
Sec. 3. Sharia Advisory Council

The Sharia Advisory Council of the
Islamic Bank shall be composed of at least
three (3) but not more than five (5)
members, selected from among Islamic
scholars and jurists of comparative law.
The members shall be elected at a
general shareholders meeting of the Islamic
Bank every three (3) years from a list of
nominees prepared by the Board of
Directors of the Islamic Bank. The Board is
hereby authorized to select the members of
the first Sharia Advisory Council and to
determine their remunerations.
Sec. 4. Functions of the Sharia Advisory
Council
The functions of the Sharia Advisory
Council shall be to offer advice and
undertake reviews pertaining to the
application of the principles and rulings of
the Islamic Sharia to the Islamic Banks
transactions, but it shall not directly involve
itself in the operations of the Bank.
Any member of the Sharia Advisory Council
may be invited to sit in the regular or special
meetings of the Board of Directors of the
Islamic Bank to expound his views on
matters of the Islamic Sharia affecting a
particular transaction but he shall not be
entitled to vote on the question presented
before the board meetings.
Sec. 5. Islamic Banks Powers
The Al-Amanah Islamic Investment
Bank of the Philippines, upon its organization, shall be a body corporate and shall
have the power:
1. To prescribe its by-laws and its
operating policies;
2. To adopt, alter and use a corporate
seal;
APP. 44
05.12.31
3. To make contracts, to sue and be

sued;
4. To borrow money; to own real or
personal property and to introduce
improvements thereon, and to sell mortgage
or otherwise dispose of the same;
5. To employ such officers and
personnel, preferably from the qualified
Muslim sector, as may be necessary to carry
Islamic banking business;
6. To establish branches, agencies and
correspondent offices in provinces and cities
in the Philippines, particularly where
Muslims are predominantly located, or in
other areas in the country or abroad as may
be necessary to carry on its Islamic banking
business, subject to the rules and
regulations of the BSP;
7. To perform the following banking
services:
a. Open current or checking accounts;
b. Open savings accounts for
safekeeping or custody with no
participation in profit and losses
unless otherwise authorized by
the account holders to be
invested;
c. Accept investment account
placements and invest the same for
a term with the IBs funds in
Islamically permissible transactions
on participation basis;
d. Accept foreign currency deposits
from
banks,
companies,
organizations and individuals,
including foreign governments;
e. Buy and sell foreign exchange;
f. Act as correspondent of banks and
institutions to handle remittances or
any fund transfers;
g. Accept drafts and issue letters of
credit or letters of guarantee,
negotiable notes and bills of
exchange and other evidence of
indebtedness under the universally
accepted Islamic financial
instruments;
h. Act as collection agent insofar as the

payment orders, bills of exchange
or other commercial documents are
exclusive of riba or interest
prohibitions;
i. Provide financing with or without
collateral by way of Al-Ijarah
(leasing), Al-Bai ul Takjiri (sale and
leaseback), or Al-Murabahah (costplus profit sales arrangement);
j. Handle storage operations for
goods or commodity financing
secured by warehouse receipts
presented to the Bank;
k. Issue shares for the account of
institutions and companies assisted
by the Bank in meeting subscription
calls or augmenting their capital
and/or fund requirements as may be
allowed by law;
l. Undertake various investments in
all transactions allowed by the
Islamic Sharia in such a way that
shall not permit the haram
(forbidden), nor forbid the halal
(permissible);
8. To act as an official depository of
the government or its branches,
subdivisions and instrumentalities and of
corporations, particularly those doing
business in the Autonomous Region;
9. To issue investment participation
certificates, muquaradah (non-interestbearing bonds), debentures, collaterals
and/or the renewal or refinancing of the
same, with the approval of the Monetary
Board of the BSP, to be used by the Bank
in its financing operations for projects
that will promote the economic
development primarily of the
Autonomous Region;
10. To carry out financing and joint
investment operations by way of mudarabah
partnership, musharaka joint venture or by
decreasing participation, murabaha
purchasing for others on a cost-plus
APP. 44
05.12.31
financing arrangement, and to invest funds

directly in various projects or through the
use of funds whose owners desire to invest
jointly with other resources available to the
IB on a joint mudarabah basis;
11. To invest in the equity of allied
undertakings, financial or non-financial, as
well as in the equity of enterprises engaged
in non-allied activities, as the Monetary
Board has declared or may declare as
appropriate from time to time, subject to
the limitations and conditions provided for
under the Manual of Regulations for Banks
and Other Financial Intermediaries Book
I (MRBOFI); and
12. To exercise the powers granted
under R.A. No. 6848 and such incidental
powers as may be necessary to carry on
its business, and to exercise further the
general powers mentioned in the
Corporation Law and the General
Banking Act, insofar as they are not
inconsistent or incompatible with the
provisions of R.A. No. 6848.
Sec. 6. Authorized Capital Stock
The authorized capital stock of the IB
shall be P1.0 billion divided into 10.0
million common shares with par value of
One hundred pesos (P100.00) each. All
shares are nominative and indivisible. The
subscription to and ownership of such
shares, including the transfer thereof to
third parties, shall be limited to persons and
entities who subscribe to the concept of
Islamic banking.
Sec. 7. Classification of Shares
The IBs authorized capital stock shall
have the following classifications and
features in relation to its Islamic banking
operations:
1. Series A shares shall comprise 5.1
million shares equivalent to P510.0
million to be made available for
subscription by the present
stockholders of the Philippine
Amanah Bank namely: the National

Government, and such other
financial entities as it may designate.
2. Series B shares shall comprise
nine hundred thousand (900,000)
shares equivalent to P90.0 million
to be made available for
subscription by the Filipino
individuals and institutions.
3. Series C shares shall comprise
4.0 million shares equivalent to
P400.0 million to be made available
for subscription by Filipino and
foreign individuals and/or
institutions or entities:
Any shareholders may exercise his preemptive right to consolidate ownership of
the outstanding shares as hereinafter
increased: Provided, That the common
shares of the Philippine Amanah Bank
which have been issued and outstanding
shall form part of the increased
capitalization of the IB, subject to the
concurrence of the existing shareholders of
the Philippine Amanah Bank.
The IB is authorized to reacquire its
common shares that are held privately:
Provided, That it has sufficient surplus
and/or accumulated earnings for the
purpose.
The IB may take the necessary steps to
have its Series B shares listed in any duly
registered stock exchange.
Sec. 8. Sale or Transfer of Shares
The IB shall make a report to the BSP
whenever a change is about to take place in
relation to the ownership or control of the
Bank. The approval of the Monetary Board
shall be required in the following changes.
1. Any proposal for the sale or disposal
of its share or business, or other matters
related thereto, which will result in a change
of the control of management of the IB in
a. Any sale or transfer of ownership
or control of more than twenty
APP. 44
05.12.31
percent (20%) of the voting stock of

the Bank to any person whether
natural or juridical; and
b. Any sale or transfer or a series of
sales or transfers which will effect a
change in the majority ownership
or control of the voting stock of the
Bank from one group of persons to
another group.
2. Any scheme for reconstruction or for
consolidation or merger, or otherwise,
between the IB and any other company
wherein the whole or any part of the
undertaking of the property of the IB is to be
transferred to another corporation.
3. Acquisition by foreign banking
institutions, including their wholly- or
majority-owned subsidiaries and their
holding companies having majority
holdings in such foreign banking
institutions.
Sec. 9. Privatization
The IB may privatize its ownership. For
this purpose, any limitation on the transfer
of shares shall not be applicable with respect
to the shareholdings of the National
Government, SSS, GSIS, PNB and
DBP.Transactions affecting the shares of
stocks of the IB shall be subject to existing
rules and regulations governing transfer of
shares and ceilings on stockholdings, insofar
as they are not in conflict with any
provisions of R.A. No. 6848 and other
pertinent laws, rules and regulations.
Sec. 10. Board of Arbitration
The Board of Directors of the IB, acting
as an arbitrator, shall settle by the majority
decision of its members any dispute between
and among shareholders of the IB, whether
individuals or entities, where such dispute
arises from their relations as shareholders
in the IB. The Board shall be bound in this
respect to the procedures of laws on civil
and commercial pleadings, except in regard
to the basic principles of due process.
If the dispute is between the IB and

any of the investors or the shareholders,
a Board of Arbitration shall settle such
dispute. In this case, the Board of
Arbitration, consisting of three (3)
members shall be formed by two (2)
parties to the dispute within forty-five
(45) days from receipt of written notice
by either party to the dispute. The three
(3) members shall be selected as follows:
one (1) arbitrator from each party who
shall then select a casting arbitrator as
the third member of the board. The three
(3) shall select one of them to preside over
the Board of Arbitration. The selection
by each party of its arbitrator shall be
deemed as an acceptance of the
arbitrators decision and of its finality.
In the event that one of the two parties
shall fail to select its arbitrator or in the case
of nonagreement on the selection of the
casting arbitrator or the presiding member
of the Board of Arbitration within the
period specified in the preceding paragraph,
the matter shall be submitted to the Sharia
Advisory Council which shall select the
arbitrator, the casting arbitrator or the
presiding member, as the case may be.
The Board of Arbitration shall meet at
the IBs principal office and shall set up the
procedure of arbitration which it shall
follow in hearing and deciding the dispute.
The decision shall include the method of its
execution and the party that shall incur the
costs of arbitration. The final judgment shall
be deposited with the Office of the Corporate
Secretary of the Bank and the SEC.
The Board of Arbitrations decision
shall, in all cases, be final and executory.
It shall be valid for execution in the same
manner as final judgments are effected
under R.A. No. 876 otherwise known as
the Arbitration Law.
Sec. 11. Incentives to Islamic Banking
Subject to the provisions of Section 72
of the New Central Bank Act, the
APP. 44
05.12.31
provisions of the Omnibus Investment

Code on the basic rights and guarantees of
investors are made applicable to the
commercial operations of the IB in respect
to repatriation or remittance of profits from
investments, and to protection against
nationalization, sequestrations, or
expropriation proceedings. Any proceedings
of judicial or administrative seizure may not
be taken against the said property or
investment except upon a final court
judgment.
Sec. 12. Grants and Donations
The IB shall accept grants, donations,
endowments, and subsidies, or funds and/
or property offered by individuals and
organization who may earmark such grants
for a specific purpose or for such other
purposes beneficial to the Muslim
communities, without prejudice to the
general objectives of the IB.
The financial statement and books of
accounts of such funds shall be maintained
separately but may be supplemented to the
IBs balance sheet.
Under special circumstances in
which the Board of Directors considers
it advisable to promote or facilitate
Islamic banking business and commercial
operations, the IB may seek financing
from governments, organizations,
individuals or banks always without
prejudice to the provisions of Section 43
of R.A. No. 6848.
Sec. 13. Non-Interest Bearing Placements
The IB is authorized to accept deposits
from governments, banks, organizations or
other entities and individuals from within
the Philippines or abroad which shall form
under any of the following non-interest
bearing placements:
1. Savings accounts
2. Investment participation accounts
3. Current accounts and other deposit
liabilities.
Any deposit received by the IB without

authorization to invest shall be treated as
current account and savings account, as the
case may be, and may be withdrawn
wholly or partly at any time, under the
principle of Al-Wadiah (Safe Custody). The
IB shall provide check books for its current
account depositors and savings passbook
for savings account depositors and other
usual services connected therewith.
The IB, at its absolute discretion, may
reward the customers for the use of their
funds. The Board of Directors shall formulate
rules and guidelines which should be
consistent with the Sharia principle, in the
giving of rewards to the customers.
All deposits received with authorization
to invest for a given period of time shall
form part of the general pool of placements
allocated for the investment portfolios of the
IB and may be added to its working capital
to be invested in any special projects or in
general areas of investments or commercial
operations of the Bank. These deposits shall
be called as Investment Participation
Accounts in which under the principle of
Al-Mudarabah, the IB acts as the
entrepreneur and the customers as the
Provider of Capital, and both shall agree
through negotiation on the ratio of
distribution of the profits generated from
the investment of the funds. In the event
of loss, the customers shall bear all the
losses.
Sec. 14. Investment of Funds
The IB shall have the capacity of agent
or attorney and shall act with full
authority on behalf of the group of
depositors in general in investing their
commingled deposits without prejudice
to the following sections and shall ensure
a degree of liquidity to be determined by
the Board of Directors to meet the current
obligations of the IB including drawings
from savings accounts and current
accounts: Provided, That such degree of
APP. 44
05.12.31
liquidity shall be subject to the reserve

requirement as may be determined by the
BSP. The Board of Directors shall
determine the period for an investment
participation account. Investment of funds
shall be undertaken by the IB acting on
behalf of the group of depositors or investors
in selected areas of investment under such
terms and conditions as the Board of
Directors may determine by way of
mudarabah or other forms of joint
investment permitted by Islamic Sharia
principle.
Sec. 15. Return on Investment Funds
The depositors or investors in joint
investment participation accounts shall be
entitled to a portion of the return on
investment according to the deposit
balances and its period. The profits on
participation account with authorization to
invest in specific transaction shall be
calculated on the same basis as on the
capital funds invested as determined by the
Board of Directors pursuant to Section 35
of R.A. No. 6848.
Sec. 16. Allocation of Resources
The IB may allocate part of its own
investible funds or of the deposits on hand
to finance investment projects and carry on
its Islamic banking business directly or
indirectly under its own supervision. For
this purpose, it may create and finance
investment companies or affiliates which
shall manage investment projects on behalf
of and under the supervision of the IB and
for its own account.
The IB shall ascertain the viability and
soundness of investment projects which it
may directly supervise and those in which
it may participate with part of its own funds,
with the general pool of investors funds with
authorization. The IB shall have the right
to inspect and supervise the projects which
it shall finance or in which it is the majority
shareholder. The original capital and
related profits shall be remitted in the same

currency it was originally contributed or
in one of the convertible currencies, as the
Board of Directors shall determine in
accordance with R.A. No. 6848.
Sec. 17. Authorized Banking Services
The IB shall exercise all the powers
enumerated under Section 6 of R.A. No. 6848
and perform all the services of a bank, except
as otherwise prohibited by R.A. No. 6848:
Provided, That no transactions with any
customer, company, corporation or firm shall
be permitted for discounts by the BSP.
Sec. 18. Acceptance of Government
Funds
Pursuant to Sec. 6 (8) of R.A. No. 6848,
the IB shall act as an official depository of the
government or its branches, subdivisions and
instrumentalities and of government-owned
or controlled corporations, particularly
those doing business in the autonomous
region. Government funds placed with
the IB shall be limited to working
balances. All government deposits in
excess of working balances shall be
placed with the BSP.
Once privatized, acceptance by the IB
of government funds or deposits shall be
subject to existing laws and regulations
governing the acceptance of such funds by
private commercial banks which include
prior Monetary Board approval.
The government deposits held by the
IB shall be subject to reserve and liquidity
floor requirements as the Monetary Board
may prescribe.
Sec. 19. Authorized Commercial Operations
The IB may operate as an Investment
House pursuant to Presidential Decree no.
129, as amended, and as a Venture Capital
Corporation pursuant to Presidential
Decree No. 1688, and by virtue thereof,
carry on the following types of commercial
operations:
APP. 44
05.12.31
1. The IB may have a direct interest as

a shareholder, partner, owner or any other
capacity in any commercial, industrial,
agricultural, real estate or development
project under mudarabah form of
partnership or musharaka joint venture
agreement or by decreasing participation,
or otherwise invest under any of the
various contemporary Islamic financing
techniques or modes of investment for
profit sharing.
2. The IB may carry on commercial
operations for the purpose of realizing its
investment banking objectives by
establishing enterprises or financing
existing enterprises, or otherwise by
participating in any way with other
companies, institutions or banks
performing activities similar to its own
or which may help accomplish its
objectives in the Philippines or abroad,
under any of the contemporary Islamic
financing techniques or modes of
investment for profit sharing; and
3) The IB may perform all business
ventures and transactions as may be
necessary to carry out the objectives of
its charter within the framework of the
IBs financial capabilities and technical
considerations prescribed by law and
convention: Provided, That these shall
not involve any riba or other activities
prohibited by the Islamic Sharia
principles.
The IB may likewise perform the
functions of an investment house either
directly or indirectly through a subsidiary
investment house; in either case, the
underwriting of equity securities and
securities dealing shall be subject to
pertinent laws and rules and regulations
of the SEC: Provided, That the IB cannot
perform such functions both directly and
indirectly through a subsidiary: Provided,
further, That if the investment house
functions are performed directly by the
IB, such functions shall be undertaken by
a separate and distinct department or

other similar unit in the bank: Provided,
finally, That if the bank avails of the
option of exercising the powers of an
investment house indirectly through its
subsidiary investment house, it may not
directly exercise the powers which are
exclusively reserved to IHs.
Sec. 20. Employee Share Schemes
The Board of Directors may adopt an
employee profit sharing scheme under any
of the following ways:
1. Any arrangement under which the
directors, officers and employees of the
IB receive, in addition to their salaries and
wages, a share, fixed beforehand, in the
profits realized by the Bank or by its
affiliate companies to which the profit
sharing scheme relates; and
2. Any arrangement under which the
IB facilitates the acquisition by its
directors, officers and employees of
common shares of stock either as shareincentives, share-bonus options, or any
other share-saving schemes as the Board
of Directors may determine.
No scheme shall be approved by the
Board of Directors under this section
unless it is satisfied that the participant
in the profit sharing scheme is bound by
a contract with the IB by virtue of which
an appropriation of shares has been made
for the purpose. The shares so purchased
or appropriated shall be deposited in
escrow with the Bank.
The Board of Directors of the IB shall
then constitute the trustee of the approved
scheme, whose functions with respect to
the common shares held by them are
regulated by Chapter VII of the General
Banking Act and other pertinent laws.
The terms of the approved scheme shall
be prescribed by the Board of Directors
and embodied in a deed of instrument.
The adoption of and any change in
the employee profit sharing scheme shall
APP. 44
05.12.31
be reported to the appropriate supervising

and examining department of the BSP
within thirty (30) calendar days from the
date of approval.
Sec. 21. Investment Ceilings; Business
Limits
The IB shall observe the following
investment ceilings and business limits in
its operations:
1. The aggregate credit facilities or any
other liabilities of any customer of the IB
shall not exceed at all times fifteen percent
(15%) of the unimpaired capital and surplus
of the Bank.
compliance with this regulation, credit
facilities shall refer to:
a. Interbank Receivable
b. Financing and Investment
c. Trade Financing
d. Agrarian Reform/Other Agricultural
Financing P. D. No. 717
e. Bills Purchased
f. Customers Liability on Bills/Drafts
under Letters of Credit and/or Trust
Receipts
g. Customers Liability for this Banks
Acceptances Outstanding
h. Trading Account Securities
Financing
i. Underwriting Accounts Debt
Securities
j. Stand-by Letters of Credit
k. Such other facilities as may be
determined by the Monetary Board
Credit facilities granted by the IB to
any other bank, as well as deposits
maintained by it in any bank, shall
be subject to the credit facility limit
to any single borrower as herein
prescribed.
2. The aggregate amount of investment
portfolios for any single industry (following
the major industry groupings in the 1977
Philippine Standard Industrial Classification)
shall at no time exceed thirty percent (30%)
of the IBs investment capacity. Investment

capacity shall mean the total unimpaired
capital and surplus plus deposits and
borrowings minus the investment in bank
premises.
3. The IB shall not grant unsecured
loans except gardhasan (benevolent loans).
Such outstanding unsecured loans or
credit accommodations which the IB
may extend at any time without security
or in respect of any advance, loan or credit
facility made with the security wholly or
partly whenever at any time it exceeds the
aggregate market value of the assets
constituting the security, shall be limited
to fifty thousand pesos (P50,000.00) to any
person, company, corporation or firm.
4. A credit facility granted to any
person for the purpose of financing the
acquisition of shares in any company,
corporation or firm shall not exceed fifty
percent (50%) of the appraised value of the
shares at the time the credit facility is
granted. Appraised value, in the case of
listed shares, shall mean the weighted
average price in the stock exchange. For
unlisted shares, the appraised value shall
mean the book value of the shares.
Sec. 22. Loans and Credit Facilities to
Directors, Officers, Employees and
Stockholders
1. General Policy.
Except as
otherwise provided in these regulations,
the IB shall not directly or indirectly grant
an advance, loan or credit facility to any
of its directors, officers, employees or
stockholders, or to any other person for
whom any of them is a guarantor, or in
any manner be an obligor for money
granted by the IB.
2. Direct Loans to Officers,
Employees and Stockholders. Whenever
the IB is satisfied that special circumstances
exist, a loan not exceeding at any one time
an amount equivalent to six months
remuneration, may be granted to an officer
APP. 44
05.12.31
or employee on such terms and conditions

as the IB deems fit: Provided, however,
That loans and advances to officers and
employees in the form of fringe benefits
granted in accordance with the rules and
regulations prescribed under Section
1337 of the MRBOFI shall not be subject
to the preceding limitation, nor to the
ceiling on unsecured loans prescribed in
Section 21.
The IB may extend credit facilities to
stockholders owning two percent (2%)
or more of the subscribed capital stock
up to an amount equivalent to the
outstanding deposits or the book value
of his paid-in capital in the Bank,
3. Indirect Credit Facilities to
Directors and Auditors. No credit facility
shall be granted by the IB to a company,
corporation, partnership or firm wherein
any member of the Board of Directors or
auditors is a shareholder, partner,
manager, agent or employee in any
manner, except with the written approval
of and by unanimous vote of not less
than two-thirds of all the members of the
Board of directors, excluding the director
concerned: Provided, That the total
liabilities of such company, corporation,
partnership or firm to the IB shall be
limited to the directors or auditors
outstanding deposits or the book value
of his paid-in capital in the Bank,
4. Aggregate Ceiling. Except with
the prior approval of the Monetary Board,
the total outstanding credit facilities of
directors, officers, auditors and
stockholders, whether direct or indirect,
shall not exceed fifteen percent (15%) of
the total credit facilities of the Bank or
one hundred percent (100%) of
combined capital accounts, net of
deferred income tax and such unbooked
valuation reserves and other capital
adjustments as may be required by the

BSP, whichever is lower.
5. Procedural Requirements. The
following provisions shall apply to direct
loans to officers and indirect credit facilities
to directors and auditors, allowed under
these regulations.
a. Approval of the Board; when to
obtain. Direct loans to officers shall
require the prior written approval of
the majority of the directors.
Indirect loans to directors and
auditors shall be allowed subject to
the prior written approval, and by
unanimous vote, of not less than
two-thirds (2/3) of all the members
of the Board of Directors, excluding
the director concerned.
b. Approval by the Board; how
manifested. The approval as
required in item a above shall be
manifested in a resolution passed by
the Board of Directors duly
assembled during a regular or
special meeting for that purpose and
made of record.
c. Determination of compliance with
the required number of votes. The
determination of the majority or
two-thirds (2/3) of the directors,
excluding the directors concerned,
shall be based on the total number
of directors of the Bank as provided
in its Charter and By-Laws.
d. Content of the resolution. The
resolution of the Board of Directors
shall contain the following
information:
(i) Name of the director, officer or
auditor concerned and his
relationship as regards the credit
facility, such as principal, indorser,
guarantor, etc.;
(ii) Nature of the loan or credit facility,
purpose, amount, credit basis for
such loan or credit facility,
APP. 44
05.12.31
security and appraisal thereof,

maturity, schedule of repayment,
and other terms of the loan or
credit facility;
(iii) Date of the resolution;
(iv) Names of the directors who were
present and who participated in the
deliberations of the meeting;
(v) Names in print and signatures of
the directors approving the
resolution: Provided, That the
corporate secretary may sign,
under a power-of-attorney, in
behalf of a director who was
present in the board meeting and
who approved such resolution,
in instances where such signature
is necessary to indicate that such
resolution was approved by a
majority or two-thirds of the
directors; and
(vi) Such other information as may be
required by the appropriate
supervising and examining
department of the BSP.
e. Transmittal of copy of board
approval; contents thereof. A copy of
the written approval of the Board of
Directors, as herein required, shall be
within twenty (20) banking days from the
date of approval. The copy may be a
duplicate of the original, or a
reproduction copy showing clearly the
signatures of the approving directors:
Provided, That if a reproduction copy is
to be submitted, it shall contain on its
face or reverse side a signed certification
by the Secretary that it is a reproduction
of the original written approval.
on the demand letter, or within six (6)

months from date of grant, whichever
comes earlier;
2. Financing and investment
accounts not paid at maturity/ expiry date
or not paid in accordance with the terms
of payment stipulated in the agreement/
contract;
3. Customers liability on drafts under
LC/TR
a. Sight Bills if dishonored upon
presentment for payment or not
paid within thirty (30) days from date
of original entry, whichever comes
earlier;
b. Usance Bills if dishonored upon
presentment for acceptance or not
paid on due date, whichever comes
earlier; and
c. Trust Receipts if not paid on due
date;
4. Bills and other negotiable
instruments purchased if dishonored
upon presentment for acceptance/
payment or not paid on maturity date,
whichever comes earlier: Provided,
however, That an out-of-town check and
a foreign check shall be considered as
past due if outstanding for thirty (30) days
and forty-five (45) days respectively,
unless earlier dishonored;
5. Credit facilities or receivables
payable in installments the total
outstanding balance thereof shall be
considered past due in accordance with the
following schedule:
Sec. 23. Past Due Accounts

Accounts considered past due. The
following shall be considered as past due:
1. Loans or receivables payable on
demand if not paid on the date indicated

balance of the credit facility/receivable, the
total outstanding balance of the credit
Mode of Payment
Monthly
Quarterly
Semestrally
Annually
Minimum Number of
Installments in Arrears
6
2
1
1
APP. 44
05.12.31
facility/receivable shall be considered as

past due, notwithstanding the number of
installments in arrears: Provided, further,
That for modes of payment other than those
listed above (e.g., daily, weekly or semimonthly), the entire outstanding balance of
the loan/receivable shall be considered as
past due when the total amount of
arrearages reaches ten percent (10%) of the
total receivable balance;
6. Credit card receivables if the
amount due is not paid within ten (10) days
from the deadline indicated in the billing
statement; and
7. All items in litigation as defined in
the IBs Manual of Accounts.
delinquency in the payment of obligations
as a ground for disqualification of bank
directors and officers, any due and unpaid
loan/financing installment or portion
thereof, from the time the obligor defaults,
shall be considered as past due.
Sec. 24. Equity Investments
1. Financial Allied Undertakings.
With prior approval of the Monetary Board,
the IB may invest in the equity of the
following financial allied undertakings:
a. Leasing companies;
b. Banks;
c. Investment houses;
d. Financing companies;
e. Credit card operations;
f. Financial institutions addressed/
catering to small and medium-scale
industries;
g. Companies engaged in stock
brokerage/security dealership/
brokerage;
h. Foreign exchange dealers/brokers;
and
i. Insurance companies
Provided, That any such undertaking is
the primary purpose for which a
particular enterprise was established and
the volume of its business indicates that
it is principally engaged in such

undertaking.
The equity investment of the IB in a
single financial allied undertaking shall be,
in relation to the total subscribed capital
stock and in relation to the total voting stock
of the allied undertaking, within the
following ratios:
Allied Undertaking
KBs
TBs and RBs
Other financial allied
undertakings
Limit
- Up to 49%
- Up to 100%
- Up to 100% without
prejudice to the
limitations prescribed
in Subsec. 1378.1 (of
the MRBOFI).
Provided, That the equity investment in an

insurance company of the IB, any of its
wholly or majority-owned subsidiaries, its
directors, officers and stockholders owning
two percent (2%) or more of the banks
subscribed capital stock, shall not exceed
fifty-one percent (51%) of the total
subscribed capital stock and the total voting
stock of such insurance company.
The equity investment of the IB in a
bank pursuant to R.A. No. 7721 shall be
governed by the rules and regulations
implementing said law.
2. Non-Financial Allied Undertakings.
The IB may invest in the equity of the
following non-financial allied undertakings:
a. Warehousing companies;
b. Storage companies;
c. Safe deposit box companies;
d. Companies engaged in the
management of mutual funds but not in the
mutual funds themselves;
e. Management
corporations
engaged or to be engaged in activity
similar to the management of mutual
funds;
f. Companies engaged in the
provision of computer services;
g. Insurance agencies: Provided,
That no director, officer or stockholder
APP. 44
05.12.31
of the bank and their related interests

hold/own more than twenty percent (20%)
of the subscribed capital stock or equity
of the insurance company for which the
affiliates insurance acts as agent;
h. Companies engaged in home
building and home development;
i. Companies providing drying and/or
milling facilities for agricultural crops such
as rice and corn;
j. Companies engaged in insurance
brokerage: Provided, That no director,
officer, stockholder of the IB or its related
interests shall have financial interests in the
insurance company/companies for which
the affiliate insurance brokerage company
acts as broker;
k. Bank service corporations all of the
capital of which is owned by one or more
banks and organized to perform for and in
behalf of banks the following services:
(i) data processing systems development
and maintenance;
(ii) deposit and withdrawal recording;
(iii) computation and recording of
interests, service charges, penalties
and other fees;
(iv) check-clearing processing, such as
the transmission and receipt of
check-clearing items/tapes to and
from the BSP, collection and delivery
of checks not included in the
Philippine Clearing House System,
as well as the recording of the same;
and
(v) printing and delivery of bank
statements.
l. Clearing house companies such as
the PCHC and the Philippine Central
Depository, Inc.
Provided, further, That any such
undertaking is the primary purpose for
which a particular enterprise was
established and the volume of its business
indicates that it is principally engaged in
such undertaking.
The IB may acquire up to one hundred

percent (100%) of the equity of a nonfinancial allied undertaking. However, prior
Monetary Board approval is required if the
investment is in excess of forty percent (40%)
of the total subscribed capital stock or forty
percent (40%) of the total voting stock of
such allied undertaking.
3. Investments in Non-Allied or NonRelated Enterprises. The broad category
of undertakings in which the IB may invest
in directly or through its wholly or
majority-owned subsidiary shall be
subject to prior approval of the Monetary
Board. Investments shall be allowed in
enterprises engaged in certain activities
in agriculture, mining and quarrying,
manufacturing, public utilities,
construction, wholesale trade and
community and social services following
the industrial groupings in the 1977
Philippine
Standard
Industrial
Classification (PSIC) as enumerated in
Annex I of Subsection 1380.1 of the
MRBOFI, as amended. Individual equity
investment in undertakings within these
enumerated activities shall not require
prior approval: Provided, however, That
within thirty (30) days after the investment,
the Bank shall furnish the appropriate
the BSP such relevant information on the
investments made as amount invested,
name of investee company, and nature of
business, accompanied by such pertinent
documents as Articles of Incorporation,
Articles of Partnership or Registration
Certificate, whichever may be applicable,
and such other information which may be
required: Provided, further, That said
investment is within the limits and
restrictions set forth in the succeeding
paragraphs of this Section.
The equity investment of the IB or of
its wholly or majority-owned subsidiary,
in any single non-allied enterprise shall
APP. 44
05.12.31
not exceed thirty-five percent (35%) of the

total subscribed capital stock nor shall it
exceed thirty-five percent (35%) of the
voting stock in the enterprise.
compliance with the ceiling prescribed in
the preceding paragraph, (i) the equity
investment of the Bank; (ii) the equity
investment of the Banks wholly or
majority-owned subsidiaries; and (iii) the
equity investment of directors, officers
and stockholders owning two percent
(2%) or more of the subscribed capital
stock of the Bank or of the Banks wholly
or majority-owned subsidiaries, shall be
combined.
In no case shall the total equity
investments in a single non-allied enterprise
of the IB, together with the investments of
other expanded commercial banks, nonbank financial intermediaries performing
quasi-banking functions, or their wholly or
majority-owned subsidiaries, whether or not
the parent financial intermediaries have
equity investments in the enterprise, amount
to fifty percent (50%) or more of the voting
stock of that enterprise.
4. Other Limitations and Restrictions
on Equity Investments. The following
limitations and restrictions shall also
apply regarding equity investments of the
IB:
a. The total equity investments of IB
in any single enterprise, whether
allied or non-allied, shall not at any
time exceed fifteen percent (15%)
of the Banks net worth.
b. The total amount of investment in
equities made by the IB in all
enterprises, whether allied or nonallied, shall not exceed fifty percent
(50%) of its net worth.
5. Investments Abroad. The ceiling
provided for in the preceding paragraph
shall apply to equity investments in and/
or credit facilities to any enterprise
abroad.
For purposes hereof, the phrase equity

investments in and/or credit facilities to shall
include any accommodation that gives rise
to a creditor/debtor relationship such as
deposits, money market placements, loans
or any advances or any amount of funds
granted or remitted by the IB to its
subsidiary/affiliate abroad including letters
of comfort and deposits/placements abroad
of the Bank which are hypothecated.
6. Exclusion of Underwriting Exposure
from Ceiling. The exposure of the IB arising
from the firm underwriting of equity
securities of enterprises shall not be counted
in determining compliance with the ceiling
prescribed for equity investments for a
period of two (2) years from the acquisition
of such equity securities.
Sec. 25. Special Cash Account
The IB shall open a special cash account
with the BSP in which the liquid funds shall
be deposited. Any transfer of funds from
this account to other accounts shall be made
only upon prior consultation with the IB.
The Banks Board of Directors shall
make such representations with the BSP as
may be necessary to facilitate the opening
of said account.
Sec. 26. Capital Funds Requirements
The IB shall maintain its combined
capital accounts in proportion to its assets
as prescribed by the General Banking Act
and subject to the Rules and Regulations of
the BSP.
Sec. 27. Investment Risk Fund
1. Creation. A reserve account, known
as the Investment Risk Fund, shall be
created in the books of the IB, by annually
setting aside an amount equal to ten percent
(10%) of the profits realized during the
financial year from the investment of the
customers deposits in the following
operations:
a. Financing & Investment
APP. 44
05.12.31
b. Foreign Exchange Transactions

c. Investment in Bonds & Other
Islamic Financial Instruments
d. Trading Account Securities
e. Investments in Stocks
f. Equity Investments
g. Placements with Treasury Department
h. Others
Should the accumulated reserves
equal the authorized capital of the IB, the
Board of Directors may reduce the amount
of the annual deduction to a minimal
percentage until the aggregate reserves
become double the amount of the capital,
after which the herein authorized
deduction shall cease to accrue to the
reserve account.
2. Determination of Profits and
Losses. At the close of each financial year,
the IB shall determine the results of its
operation. The Board of Directors shall,
after deducting the general and
administrative expenses including
remunerations of the Board of Directors
and Sharia Advisory Council, determine
annually what part of the income shall be
appropriated to reserves, investors and
shareholders. All accounts relating to
financing and joint investment operations
shall be kept separate from the accounts
of the other banking activities and services
offered by the IB. The same rule with
respect to the accounts of specific
investments shall apply where such
specific projects may have a separate
account.
Losses incurred, if any, shall be
deducted from the total profits realized for
the financial year in which such losses are
incurred, but any excess of losses over the
profits which have been actually realized
during the year may be deducted from the
Investment Risk Fund opened for covering
the risks of investments: Provided, That
should the total profits realized in the year
be insufficient to cover the losses incurred,
the IB shall carry out a comprehensive

assessment to arrive at estimated profit
and loss based on the market rates, from
operations which are financed by the
mudarabah funds and which have not
reached the stage of final settlement by
the end of the financial year.
3. Utilization. The Investment Risk
Fund shall be invested for the benefit of
the IB in safe non-interest bearing
transactions only, as authorized by the
Board of Directors.
The Board of Directors shall adopt
policies on the creation and utilization of
the Investment Risk Fund and determination
of profits and losses, within one (1) year
from date of this Circular.
Sec. 28. Periodic Reports
The IB shall submit to the appropriate
department/office of the BSP the periodic
reports enumerated under Annex A and
such other reports as may be prescribed
Sec. 29. Manual of Accounts
The IB shall adopt/implement the
Manual of Accounts for Al-Amanah
Islamic Investment Bank of the
Philippines as approved by the Monetary
Board in its Resolution No. 335 dated 15
March 1991.
Sec. 30. Board of Directors
The Board of Directors shall be
composed of nine (9) members duly elected
by the shareholders. The Board of Directors
shall choose from among themselves the
Chairman. The Board shall convene at the
principal office once every three (3) months
at the most upon due notice by the
Chairman or, whenever the need arises,
upon the request of three (3) members. The
Board may convene outside the IBs
principal office as the members shall
determine in the by-laws of the Bank.
APP. 44
05.12.31
Sec. 31. Power of the Board

The Board of Directors shall have the
broadest powers to manage the IB except
such matters as are explicitly reserved for
the shareholders. The Board shall adopt
policy guidelines necessary to carry out
effectively the provisions of R.A. No.
6848, as well as internal rules and
regulations necessary for the conduct of
its Islamic banking business and all
matters related to:
1. credit and investment;
2. discretionary and delegated
authorities
3. risk management;
4. investment risk fund;
5. qardhasan (benevolent loans); and
6. personnel policies
The Board of Directors shall have the
power to appoint managers, authorized
agents or legal representatives and shall
vest them with signing authority on behalf
of the Bank either severally or jointly in
accordance with the operational
procedures of the Bank.
The Board shall cause the preparation
of the IBs balance sheet for each financial
year within three (3) months at the latest
from the end of each accounting period as
well as the profit and loss statement
according to accounting rules established
and based on Islamic criteria. Copies of the
audited annual balance sheet, profit and
loss account, together with any note
thereon, and the report of the auditor and
the directors own report shall be provided
to the shareholders before the date of the
general meeting.
The Board shall also cause the
preparation of the annual revenue and
expenditures budget as well as the annual
business plan.
Sec. 32. Chief Executive Officer; Other
Officers and Employees
The Chairman of the Board of the IB
shall be the Chief Executive Officer of the
Bank. He must have experience and training

in Islamic banking. All other officers and
employees of the IB shall, upon
recommendation of the Chief Executive
Officer, be appointed and removed by the
Board which shall not be subject to Civil
Service Law.
The Chief Executive Officer of the IB
shall, among others, execute and
administer the policies, measures, orders
and resolutions approved by the Board of
Directors. In particular, he shall have the
power and duty to execute all contracts
in behalf of the IB, to enter into all
necessary obligations required or
permitted under R.A. No. 6848, to report
weekly to the Board of Directors the main
facts concerning the operations of the
Bank during the preceding week, and to
suggest changes in policy or policies
which will serve the best interest of the
Bank.
Sec. 33. Qualifications and Disqualifications
of Directors and Officers
The provisions (of the MRBOFI Book I)
regarding the qualifications and
disqualifications of directors and officers
shall be applicable to the directors and
officers of the IB.
Sec. 34. Business Development Office
The IB shall have a Business
Development Office which shall be
responsible for the following:
1. To conduct periodic economic
surveys and studies of the investment
climate and opportunities in the IBs sphere
of operations and identify the viable projects
which may be sponsored by the people of
the Autonomous Region;
2. To offer technical consultancy
services in the preparation of project studies
and in meeting other technical credit
requirements of the IB, including the
provision of the management consultants at
rates to be determined by the Board of
APP. 44
05.12.31
Directors to projects financially assisted by

the IB; and
3. To perform such other functions
as may be directed by the Board of
Directors.
Sec. 35. General Shareholders Meeting
The shareholders shall convene in a
general meeting annually at the latest
within six (6) months following the end
of the financial year of the Bank at the
place, date and time fixed in the notice.
The attendance of shareholders
representing at least sixty percent (60%)
of the capital of the IB shall constitute a
quorum to do business and voting shall
be by shares of stocks.
For purposes of this section, Capital
shall refer to the Total Subscribed Capital,
whether paid or unpaid.
No delinquent stock shall be voted for
or be entitled to vote or to representation
at any stockholders meeting, nor shall the
holder thereof be entitled to any of the
rights of a stockholder except the right to
dividends until and unless he pays the
amount due on his subscription,
including the cost and expenses incurred
thereon, if any.
Holders of subscribed shares not fully
paid which are not delinquent shall have
all the rights of a stockholder.
Sec. 36. Purposes of General Meeting
The general shareholders meeting
shall be convened purposely to hear the
Board of Directors report on the activities
of the IB, its financial condition, the
auditors report and to approve the
balance sheet for the financial year ended
and the profit and loss statement, to
determine the portion of dividends to be
distributed to the shareholders and the
method of distribution, to appoint the
auditors, and to elect the members of the
Board of Directors and the Sharia
Advisory Council.
Sec. 37. Ordinary and Extraordinary

Sessions
The general shareholders meeting shall
be presided over by the Chairman of the
Board of Directors. All resolutions adopted
by the general meeting in ordinary session
assembled shall be taken by a vote of
majority of the shareholders represented
therein and in case of votes being equal,
the Chairman shall cast his vote to break
the tie. The resolutions of the general
meeting adopted in accordance therewith
shall be binding on all shareholders
including those not in attendance or
opposing the resolution.
An extraordinary general meeting
shall be required to pass resolutions
related to the increase or decrease of
capital of the Bank, the extension of its
legal existence or matters affecting
amendment of R.A. No. 6848.
Resolutions of the extraordinary general
meeting shall be deemed adopted when
a majority vote of at least sixty-six and
two-thirds plus one percent (66 & 2/3 +
1%) of the capital shares shall have been
cast.
In no case shall the general meeting
resolve to modify the object of the Bank as
an Islamic investment bank.
Sec. 38. Bank Auditor; Reports
Subject to the approval by the
shareholders, the IB shall appoint an
external auditor, whose qualifications and
remunerations shall be fixed by the Board
of Directors. The external auditor shall
assume his functions from the date of his
appointment until the date of the next
general shareholders meeting. In case a
vacancy occurs at any time during the
year for any reason, the Board of Directors
shall immediately appoint a replacement
who shall serve until the next general
shareholders meeting.
The external auditor shall conduct an
annual financial audit not later than thirty
APP. 44
05.12.31
(30) days after the close of the calendar

year. Reports on such audit shall be
made and submitted to the Board of
Directors and the appropriate supervising
and examining department of the BSP not
later than ninety (90) days after the start
of the audit.
For purpose hereof, an independent
external auditor who may be engaged by
the Bank shall refer to one who does not
hold or own two percent (2%) or more of
equity in the Bank.
The Board of Directors, in a regular or
special meeting, shall consider and act on
the financial audit report and shall submit,
within thirty (30) days after receipt of the
report, a copy of its resolution to the
department of the BSP. The resolution shall
show, among other things, the names of the
directors present and absent, and the
action(s) taken on the findings and
recommendations.
In the exercise of his auditing functions,
all books, accounts and documents of the Bank
shall be made available to the auditor for
inspection to ascertain its assets and liabilities.
Sec. 39. Confidential Information
Banking transactions of the IB relating
to all deposits of whatever nature are
confidential and may not be examined,
inquired or looked into by any person,
government official, bureau or office
except as provided in Sec. 38, or upon
written permission by the depositor, or
in cases where the money deposited or
the transaction concerned is the subject of
a court order.
It shall be unlawful for any official or
employee of the IB or any person as may
be designated by the Board of Directors to
examine or audit the books of the Bank to
disclose or reveal to any person any
confidential information except under the
circumstances mentioned in the preceding
paragraph.
Sec. 40. Accounting Period

The financial year of the IB shall be based
on the Gregorian calendar, but the
corresponding Islamic Hijra date shall be
mentioned on all correspondences,
contracts, printed materials, forms and
records of the IB. The accounting period
shall commence on the first day of January
and close on the last day of December
each year.
Sec. 41. Sharing between the Bank and
the Investors
Not later than the 31st day of January
of each financial year, the Board of
Directors shall determine and publish the
general percentages of profit to be
allocated to the total funds participating
in joint investments of the IB.
The IB as a joint venturer (Mudarib)
shall be entitled to certain percentage after
deducting the amount allocated to
investors. The Bank shall likewise be
entitled to a share in the profits of joint
investments in proportion to its own
invested funds.
For the purpose of calculating funds
employed in financing operations, priority
shall be given to joint investment accounts
and the holders of muquaradah (interest free)
bonds.
All zakat due in the shareholders
capital and reserves represented by the
pecuniary value of shares and the zakat
due on the investors funds or profits
accruing to every depositor shall be paid
to the zakat fund, subject to their
instructions.
The Board of Directors shall adopt a
policy on the sharing between the Bank and
its investors which should be consistent with
the Sharia principle.
Sec. 42. Training of Technical Personnel
The IB shall promote and sponsor the
training of technical personnel in the field
of Islamic banking, finance and insurance.
APP. 44
05.12.31
Towards this end, the IB may defray the

costs of study, at home or abroad, of
outstanding employees of the IB, of
promising university graduates or of any
other qualified persons who shall be
determined by proper competitive
examinations. The Board of Directors shall
prescribe rules and regulations to govern the
training program of the IB.
Sec. 43. Definition of Terms
For purposes of these Rules and
Regulations, the following definition of
term shall apply:
1. Islamic banking business means
banking business whose aims and
operations do not involve interest (riba)
which is prohibited by the Islamic Sharia
principles.
2. Sharia has the meaning assigned to
it by Islamic law and jurisprudence as
expounded by authoritative sources; in the
context of R.A. No. 6848, it is construed by
reference to pertinent Quranic ordinances
and applicable rules in Islamic jurisprudence
on business transactions.
3. Riba has the meaning assigned to it
by Islamic law and jurisprudence as
context of banking activities, the term
includes the receipt and payment of interest
in the various types of lending and
borrowing and in the exchange of currencies
on forward basis.
4. Zakat has the meaning assigned to
it by Islamic law and jurisprudence as
context of R.A. No. 6848, it represents
annual an tithe payable by the Bank on
behalf of its shareholders and investors
in compliance with Islamic Sharia
principles.
5. Depositors means a person or
entity who has an account at an IB,
whether the account is a current account,
a savings account, an investment account
or any other deposit account; unless the
context requires another meaning, a

depositor corresponds to an investor in
joint investment of the IB.
6. Current account liabilities in
relation to Islamic banking services mean
the total deposits at the Bank which are
repayable on demand.
7. Savings account liabilities in
the total deposits at the IB which normally
require the presentation of passbooks or
such other legally acceptable documents
in lieu of passbooks as approved by the
BSP for the deposit or withdrawal of
money;
8. Investment account liabilities in
the total deposit liabilities at the IB in
respect of funds placed by a depositor with
the Bank for a fixed period of time under
an agreement to share the profits and
losses of that bank on the investment of
such funds.
9. Other deposit liabilities in relation
to an IB mean the deposit liabilities at the
Bank other than savings account, investment
account, current account liabilities and
deposit liabilities from any IB or any other
licensed bank.
10. Participation in relation to Islamic
banking and commercial operations
means any agreement or arrangement
under which the mode of joint
investments or specific transactions shall
not involve the element of interest charge
other than as percentage share in profits
and losses of business.
11. Share means share in the capital
of the Bank or a corporation and
includes a stock, except where a
distinction between stock and share is
expressed or implied.
12. Muquaradah Bonds represent long
term non-interest bearing bonds of
definite denomination issued and floated
by the bank on the basis of participation
under the Mudarabah principle to be used
APP. 44
05.12.31
in financing projects for economic

development.
Sec. 44. Statement of Principles
For purposes of implementing these
Rules and Regulations, the following Sharia
principles shall be observed:
1. Al-Bai Bithaman Ajil (Deferred
Payment Sale) - principle under which
one sells to another by passing the
ownership and delivery immediately but
collects the payment later, usually by
installments. This principle is applied in
financing fixed asset acquisition, such as
buying of houses, properties, plant and
machinery, etc.
2. Al-Bai ul Takjiri (Leasing ending
with ownership) - principle under which
the fund-owner may purchase the asset
required by the fund-user with the right
to use the services of the asset, but
subsequently to own the asset. Thus, the
fund-owner first purchased the asset
required by the fund-user and
subsequently lease the asset to the funduser with the stipulation that at a point
in time the fund-user will purchase from
the fund-owner the asset concerned at an
agreed price with all the lease rental
previously paid constituting part of the
purchase price.
3. Al-Ijarah (Leasing) - principle
under which the fund-owner purchases
the asset required by the fund-user who
acquires the right to use the services of
said asset. The transaction is covered by
a contract whereby the fund-owner first
purchases the asset and subsequently
leases the same to the beneficiary (funduser) for a fixed, obligatory period,
subject to lease rentals and other terms
and conditions as may be agreed by both
parties.
4. Al-Kafalah (Guarantee)
principle under which one can provide
guarantee to another on behalf of a third
person. This principle is applied by IBs
to issue Letters of Guarantee in respect of

the performance of a task, or the settlement
of a loan, etc. Where a security deposit
is required, it is taken under the principle
of Al-Wadiah. This principle also enables
the IBs to take guarantees from others for
the credit facilities granted.
5. Al-Mudarabah (Trust Financing) principle under which a fund-owner
provides full financing to the fund-user
who provides only entrepreneurship and
labor. The fund-owner is not involved in
the management of the funds at all. The
return to the fund-owner and the fund-user
is a share of profit at a rate or ratio agreed
in advance. In case of a failure, the fundowner bears the financial losses. This
principle is applied by the IBs in both
deposit taking and financing. It is mostly
applied to support the investment (fixed)
deposit accounts.
6. Al-Murabahah (Purchase and Sale
or Cost-plus) - principle under which the
fund-owner purchases the goods or assets
required by the fund-user and sells at an
agreed mark-up to the fund-user. This
principle is applied in Bills Receivable
financing. If full financing is not to be
given, the fund-user would be requested
to place a margin deposit which will be
used to pay for a portion of the cost of the
goods or assets.
7. Al-Musharaka (Partnership Profit
Sharing) - principle under which a fundowner and an entrepreneur can jointly
contribute to the finance and the
management of a business. Profits or
losses from the joint venture are shared
between them in the rate or ratio agreed
in advance. This principle is applicable
in both the areas of funding and financing.
It is mostly applied by IBs to raise capital,
to finance projects on a joint venture
basis, and in Trust Receipt financing.
8. Al-Qardhasan (Benevolent Loan)
- principle under which one provides a
direct loan, free of any charges, to another
APP. 44
05.12.31
in need. Payment of dividend for the use

of the loan is at the discretion of the user
of the funds. Financing economic and
business activities of the poor is
sometimes extended under this principle.
9. Al-Rahan (Security) - principle
under which security can be given and
taken for an outstanding obligation.
Although IBs extend financing through
partnership and trading assets, security is
also taken as a precaution under this
principle.
10. Al-Wadiah (Safe Custody) principle under which a trustee will
safeguard the funds entrusted without any
obligation to pay any dividend to the
owners of the fund (depositors) as long as
a guarantee is given to ensure the full
refund of the money upon request of
withdrawal. The trustee can have full
discretion over the use of the funds.
11. Al-Wakalah (Agency) - principle
under which one acts as an agent for
another for a fee. This principle is applied
in the Letters of Credit (LCs) operations in
which the IBs issue LCs on behalf of their
importing costumers when only LC
service is required. A 100% margin
deposit is collected under the principle of
Al-Wadiah. The deposit will be used
ultimately to meet the full value of the
inward bills.
Sec. 45. Sanctions
Any director, officer, employee,
auditor or agent of the IB who violates or
permits the violation of any provisions of
these Rules and Regulation shall be subject
to the criminal and administrative sanctions
provided under Sections 36 and 37 of R.A.
No. 7653 (The New Central Bank Act).
Sec. 46. Supervision; Applicability of

Banking Laws, Rules and Regulations
The IB shall be under the supervision
of the BSP. The provisions of other
banking laws, MRBOFI, as well as the
existing Rules and Regulations of the BSP,
particularly those enumerated under
Annex B, and other pertinent laws
insofar as they are not in conflict with any
provisions of R.A. No. 6848 and these
Rules and Regulations shall be applicable
to the IB.
Sec. 47. Transformation to Islamic
Banking Business
The IB shall transform its investment
portfolios, accounts or assets for the
conduct of full Islamic banking business
within two (2) years from 24 April 1996.
The Monetary Board may allow extension
of the period as circumstances may
warrant. If for any reason, such portfolios,
accounts or assets granted under the
authority of the Philippine Amanah Bank
Charter are not eligible for this purpose,
the same may be transferred, swapped,
sold or otherwise disposed of in any
manner deemed feasible.
The Board of Directors of the IB shall
formulate policies to transform the
business of the Bank into an Islamic
concept, and shall submit the same to the
appropriate department of the BSP within
six (6) months from 24 April 1996.
During the transformation period, the
Bank may continue to perform
conventional banking activities under
R.A. No. 337, as amended, insofar as they
are not in conflict with R.A. No. 6848,
and the applicable rules and regulations
of the BSP.
APP. 45
05.12.31
NOTES ON MICROFINANCE
A. Definition of Microfinance
Microfinance is the provision of a
broad range of financial services, such as
deposits, loans, payment services, money
transfers and insurance products to the
poor and low-income households, for
their microenterprises and small
businesses, to enable them to raise their
income levels and improve their living
standards.
B. Core Principles for Microfinance
1. The poor needs access to
appropriate financial services
2. The poor has the capability to repay
loans, pay the real cost of loans and generate
savings.
3. Microfinance is an effective tool for
poverty alleviation
4. Microfinance institutions must aim
to provide financial services to an increasing
number of disadvantaged people
5. Microfinance can and should be
undertaken on a sustainable basis
6. Microfinance non-governmental
organizations (NGOs) and programs must
develop performance standards that will
help define and govern the microfinance
industry toward greater reach and
sustainability
C. Characteristics and Features of
Microfinance
Characteristics
Type of client
Distinguishing Features
Low income
Employment in informal
sector; low wage bracket
Lack of physical collateral
Closely interlinked
household/business activities
Lending Technology Prompt approval and

disbursement of micro loans
Lack of extensive loan records
Collateral substitutes; groupbased guarantees
Conditional access to further
micro-credits
Information-intensive
character-based lending
linked to cash flow analysis
and group-based borrower
selection
Loan Portfolio
Highly volatile
Risk heavily dependent on
portfolio management skills
Organizational
Remote from/non-dependent
Ideologyon
government
Cost recovery objective vs.
profit maximizing
Institutional
Decentralized
Structure
Insufficient external control
and regulation
Capital base is quasi-equity
(grants, soft loans)
D. Definition of Microfinance loans

Microfinancing loans are small loans
granted to the basic sectors, on the basis
of the borrowers cash flow and other
loans granted to the poor and low-income
small businesses to enable them to raise
their income levels and improve their
living standards. These loans are typically
unsecured but may also be secured as the
case may be.
E. Level of Microfinance Loan
Average microfinance loan of an NGO
microfinance institution or of a Coop Bank
or credit union in the Philippine case is
about P25,000 (from a low of P2,000 to
APP. 45
05.12.31
P5,000). To be realistic, the maximum

principal amount of a microfinance loan can
be pegged at P150,000. This is equivalent
to the total resources of a microenterprise
under R.A. 8425.
F. Collateralization of Microfinance Loan
A microfinance borrower is not likely
to be able to borrow from a large
commercial, thrift or rural bank but from
an NGO microfinance institution or
perhaps from a small rural or Coop Bank.
Thus, microfinance loans are typically
unsecured, for relatively short periods of
time (180 days) with monthly (or more
frequent) amortizations of interest and
principal, and often featuring a joint and
several guarantee of one (1) or more
persons and, certainly, seldom with
tangible collateral. But in some cases
they can also be secured, depending on
the capacity of the borrower to offer
collaterals acceptable to the lending
institutions.
G. Interest on Microfinance Loans

Great caution should be exercised in
drawing up regulations about interest rate
ceilings on microfinance loans.
The old (and by now highly
discredited as ineffective) approach to
loans for low-income borrowers
emphasized subsidized interest rates. It
did not recognize that subsidized belowmarket interest rates do not necessarily
result in opening up access to financial
services for low-income households and
microenterprises.
The new approach which has been
demonstrated by global experience is
characterized by a market-based interest
rate regime which permits the institution
providing microfinance services to cover
administrative costs, provisions for loan
losses and intermediation/funding costs.
This basis is consistent with financially

sustainable rural finance and microfinance.
Invariably, the global experience continues
to validate the proposition that what
matters most to the poor and undeserved
segments is access to financial services
rather than their interest-rate cost - most
especially because microenterprise and
small business borrowers will take a
microfinance loan whose repayment
period (monthly repayment) match the
additional cash flows they hope to generate.
Therefore, interest on such
microfinancing loans shall be reasonable
but shall not be lower than the prevailing
market rates. This is to enable the lending
institution to recover the financial and
operational costs incidental to this type of
microfinance lending but also to realize
some bottom line gains.
H. Segments of Demand for Micro-credit
1. The landless who are engaged in
agricultural work on a seasonal basis and
manual laborers in forestry, mining,
household industries, construction and
transport; requires credit for consumption
needs and also for acquiring small
productive assets, such as livestock.
2. Small and marginal farmers, rural
artisans, weavers and those self-employed
in the urban informal sector as hawkers,
vendors, and workers in household microenterprises: requires credit for working
capital, including a small part for
consumption needs. This segment largely
comprises the poor but not the poorest.
3. Medium farmers/small entrepreneurs
who have gone in for commercial crops
and others engaged in dairy, poultry, etc.
Among non-farm activities, this segment
includes those in villages and slums
engaged in processing or manufacturing
activity. These persons live barely above
the poverty line and also suffer from
inadequate access to formal credit.
APP. 46
05.12.31
GUIDELINES TO INCORPORATE MARKET RISK IN THE

RISK-BASED CAPITAL ADEQUACY FRAMEWORK
(Appendix to Subsec. 1116.5)
Introduction
1. These guidelines describe the
approach to be used by the BSP to determine
the minimum level of capital to be held by
a bank against its market risk. The guidelines
are broadly consistent with the
recommendations of the Basel Committee
on Banking Supervision in a document
entitled Amendment to the Capital Accord
to Incorporate Market Risks issued in
January 1996.
2. Under these guidelines, banks shall
be required to measure and apply capital
charges against their market risk, in addition
to their credit risk.
3. Market risk is defined as the risk of
losses in on- and off-balance sheet positions
arising from movements in market prices.
The risks addressed by these guidelines are:
- the risks pertaining to interest rate-related
instruments and equities in the trading
book; and
- Foreign exchange risk throughout the
bank.
Coverage of capital requirement for market
risk
4. The capital requirement for market
risk shall apply to all UBs and KBs.
5. The minimum capital adequacy ratio
covering combined credit risk and market risk
shall apply to banks which are subject to
market risk capital requirement on both solo
basis (i.e., head office plus branches) and
consolidated basis (i.e., parent bank plus
subsidiary financial allied undertakings, but
excluding insurance companies).
Methods of measuring market risk
6. There are two (2) alternative
methods recognized for the measurement
of market risk, as follows:
(a) The standardized approach shall be

used by all banks which are subject to
market risk capital requirement, except by
those which may be allowed by BSP to use
the alternative method described in
paragraph (b) below. The method of
measuring market risk under the
standardized approach is set out in the
Instructions for Accomplishing the Report
on Computation of the Adjusted Risk-Based
Capital Adequacy Ratio Covering
Combined Credit Risk and Market Risk.
(b) The internal models approach
allows banks with the necessary system to
use their own internal risk management
models to calculate market risk. The use of
this approach is subject to prior BSP
approval. Approval shall be based on
meeting certain qualitative and quantitative
conditions relating to the models themselves
and the controls surrounding them, as set
out in Annex A. Banks may on a
transitional basis be allowed to use a
combination of the standardized approach
and the models approach to measure their
market risk, provided any such partial
model shall cover a complete risk category
(e.g., interest rate risk or foreign exchange
risk). The reporting under the internal
models approach is contained in the
on Computation of the Adjusted Risk-Based
Capital Adequacy Ratio Covering
Calculation of the capital adequacy ratio
(CAR)
7. The adjusted capital adequacy ratio
risk shall be calculated using the qualifying
capital expressed as a percentage of the total
risk-weighted assets (including credit risk and
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05.12.31
market risk-weighted assets). The

components of this calculation are as
follows:
- Market risk-weighted assets are the sum
of the capital charges for all market risk
categories calculated using either the
standardized approach or the internal
models approach [multiplied by 125%
for those calculated using the
standardized methodology to be
consistent with the higher capital charge
for credit risk, i.e., ten percent (10%) as
opposed to BIS recommended eight
percent (8%)] multiplied by 10. (The
multiplier 10 is the reciprocal of the BSP
required minimum capital adequacy
ratio for credit risk of ten percent (10%).
The effect is to convert the sum of the
market risk capital charges into a riskweighted assets equivalent which can
then be directly added to the total credit
risk-weighted assets.);
- Credit riskweighted assets is the total
risk-weighted assets calculated in
accordance with Subsec. X116.2, less
the part calculated for on-balance sheet
debt securities and equities in the trading
book. (The credit risk-weighted assets
for on-balance sheet debt securities and
equities are deducted because they
represent an element now covered by
the market risk capital charge); and
- Qualifying capital is the same as that
calculated in accordance with Subsec.
X116.1.
8. Banks shall maintain a minimum
adjusted risk-based capital adequacy ratio
risk of ten percent (10%) calculated in this
manner on solo basis and on consolidated
basis.
The trading book
9. A key feature of the market risk
framework is the definition of the trading
book of a bank. This is set out in the

on Computation of the Adjusted RiskBased Capital Adequacy Ratio Covering
Banks are expected to adopt a consistent
approach to allocating transactions into
their trading and non-trading (i.e., banking
book), and clear audit trail for this
purpose should be created at the time
each transaction is entered into. The BSP
shall monitor banks practices to ensure
that there is no abusive switching between
different books to inappropriately reduce
capital charges.
Required reports
10. Banks shall submit quarterly reports
of their adjusted risk-based capital adequacy
ratios covering combined credit risk and
market risk on solo basis and on
consolidated basis to the appropriate
supervising and examining department of the
BSP in accordance with the prescribed
forms within fifteen (15) banking days and
thirty (30) banking days after the end of
reference quarter for solo report and
consolidated report, respectively. These
reports shall be in addition to the reports on
risk-based capital adequacy ratio covering
credit risk required to be submitted in
Subsec. X116.4.
11. One (1) of three (3) alternative
report forms prescribed, shall be used
depending on the complexity of the banks
operations, to wit:
(a) For UBs/KBs with expanded
derivatives authority;
(b) For UBs/KBs with expanded
derivatives authority but without option
transactions; or
(c) For UBs/KBs without expanded
derivatives authority.
12. The abovementioned reports shall
be classified as Category A-2 Reports.
APP. 46
05.12.31
Annex A
REQUIREMENTS FOR THE USE OF INTERNAL

MODELS TO MEASURE MARKET RISK
I. General Criteria
II. Qualitative Standards
1. The use of internal models shall be

conditional upon the explicit prior
5. Banks using internal models must have

market risk management systems that
are conceptually sound and
implemented
with
integrity.
Accordingly, a number of qualitative
criteria that banks would have to meet
before they are permitted to use a
model-based approach are specified in
paragraph 6 below. The extent to which
banks meet the qualitative criteria may
influence the level at which the BSP will
set the multiplication factor referred to
in Part IV, paragraph 8(j) below. Only
those banks whose models are in full
compliance with the qualitative criteria
as listed in this section will be eligible
for application of the minimum
multiplication factor.
2. The BSP will only give approval if at a

minimum:
-
It is satisfied that the banks risk

management system is conceptually
sound and is implemented with
integrity;
The bank has in the BSPs view

sufficient number of staff skilled in
the use of sophisticated models not
only in the trading area but also in
the risk control, audit and if
necessary, back office areas;
The banks models have in the BSPs

judgment a proven track record of
reasonable accuracy in measuring
risk; and
The bank regularly conducts stress

tests along the lines discussed in Part
V below.
3. The BSP may require a period of initial

monitoring and live testing of a banks
internal model before it is used for
supervisory capital purposes.
4. In addition to these general criteria,
banks using internal models for capital
purposes shall be subject to the
requirements detailed in Parts II to VII
below.
6. The qualitative criteria are:

(a) The bank should have an
independent risk control unit that
is responsible for the design and
implementation of the banks risk
management system. The unit
should produce and analyze daily
reports on the output of the banks
risk measurement model, including
an evaluation of the relationship
between measures of risk exposure
and trading limits. This unit must be
independent from business trading
units and should report directly to
senior management of the bank.
(b) The unit should conduct a regular
backtesting program, i.e. an ex-post
APP. 46
05.12.31
comparison of the risk measure

generated by the model against
actual daily changes in portfolio
value over longer periods of time,
as well as hypothetical changes
based on static positions.
(c) The board of directors (or equivalent
management committee in the case
of Philippine branches of foreign
banks) and senior management
should be actively involved in the
risk control process and must regard
risk control as an essential aspect
of the business to which significant
resources need to be devoted. In
this regard, the daily reports
prepared by the independent risk
control unit must be reviewed by a
level of management with sufficient
seniority and authority to enforce
both reductions of positions taken
by individual traders and reductions
in the banks overall risk exposure.
(d) The banks internal risk
measurement model must be
closely integrated into the day-today risk management process of the
bank. Its output should accordingly
be an integral part of the process of
planning,
monitoring
and
controlling the banks market risk
profile.
(e) The risk measurement system
should be used in conjunction with
internal trading and exposure limits.
In this regard, trading limits should
be related to the banks risk
measurement model in a manner
that is consistent over time and that
is well-understood by both traders
and senior management.
(f) A routine and rigorous program of
stress testing should be in place as
a supplement to the risk analysis

based on day-to-day output of the
banks risk measurement model.
The results of stress testing exercises
should be reviewed periodically by
senior management and should be
reflected in the policies and limits
set by management and the board
of directors (or equivalent
management committee in the case
of Philippine branches of foreign
banks). Where stress tests reveal
particular vulnerability to a given set
of circumstances, prompt steps
should be taken to manage those
risks appropriately (e.g., by hedging
against that outcome or reducing
the size of the banks exposures).
(g) Banks should have a routine in
place for ensuring compliance with
a documented set of internal
policies, controls and procedures
concerning the operation of the risk
measurement system. The banks
risk measurement system must be
well documented, for example,
through a risk management manual
that describes the basic principles
of the risk management system and
that provides an explanation of the
empirical techniques used to
measure market risk.
(h) An independent review of the risk
measurement system should be
carried out regularly in the banks
own internal auditing process. This
review should include both the
activities of the business trading
units and of the independent risk
control unit. A review of the overall
risk management process should
take place at regular intervals
(ideally not less than once a year)
and should specifically address, at
a minimum:
APP. 46
05.12.31
the adequacy of the documentation

of the risk management system and
process;
backtesting as described in
paragraph (b) above.
III. Specification of Market Risk Factors
the organization of the risk

control unit;
the integration of market risk

measures into daily risk
management;
the approval process for risk

pricing models and valuation
systems used by front and backoffice personnel;
the validation of any significant

change in the risk measurement
process;
the scope of market risks

captured by the risk measurement
model;
the integrity of the management

information system;
the accuracy and completeness

of position data;
the verification of the

consistency, timeliness and
reliability of data sources used
to run internal models,
including the independence of
such data sources;
the accuracy and appropriateness

of volatility and correlation
assumptions;
the accuracy of valuation and

risk transformation calculations;
and
the verification of the models

accuracy through frequent
7. A banks internal market risk

measurement system must specify an
appropriate set of market risk factors,
i.e., the market rates and prices that
affect the value of the banks trading
positions. The risk factors contained in
a market risk measurement system
should be sufficient to capture the
risks inherent in the banks portfolio
of on-and off- balance sheet trading
positions. Although banks will have
some discretion in specifying the risk
factors for their internal models, the
following guidelines should be fulfilled:
(a) For interest rates, there must be a
set of risk factors corresponding to
interest rates in each currency in
which the bank has interest ratesensitive on- or off-balance sheet
positions.
-
The risk measurement system

should model the yield curve
using one (1) of a number of
generally accepted approaches,
for example, by estimating
forward rates of zero coupon
yields. The yield curve should
be divided into various maturity
segments in order to capture
variation in the volatility of rates
along the yield curve; there will
typically be one (1) risk factor
corresponding to each maturity
segment.
For material
exposures to interest rate
movements in the major
currencies and markets, banks
must model the yield curve
using a minimum of six (6) risk
factors. However, the number
APP. 46
05.12.31
of risk factors used should

ultimately be driven by the
nature of the banks trading
strategies. For instance, a bank
with a portfolio of various types
of securities across many points
of the yield curve and that
engages in complex arbitrage
strategies would require a
greater number of risk factors to
capture interest rate risk
accurately; and
-
The risk measurement system

must incorporate separate risk
factors to capture spread risk
(e.g., between bonds and
swaps). A variety of approaches
may be used to capture the
spread risk arising from less than
perfectly correlated movements
between government and other
fixed-income interest rates, such
as specifying a completely
separate yield curve for nongovernment fixed-income
instruments (for instance, swaps
or local government unit
securities) or estimating the
spread over government rates at
various points along the yield
curve.
(b) For equity prices, there should be

risk factors corresponding to each
of the equity markets in which the
bank holds significant positions.
-
At a minimum, there should be

a risk factor that is designed to
capture market-wide movements
in equity prices (e.g., a market
index). Positions in individual
securities or in sector indices
could be expressed in betaequivalents relative to this
market-wide index;
A somewhat more detailed

approach would be to have risk
factors corresponding to
various sectors of the overall
equity market (for instance,
industry sectors or cyclical and
non-cyclical sectors). As above,
positions in individual stocks
within each sector could be
expressed in beta-equivalents
relative to the sector index; and
The most extensive approach

would be to have risk factors
corresponding to the volatility
of individual equity issues.
The sophistication and nature of the

modeling technique for a given
market should correspond to the
banks exposure to the overall
market as well as its concentration
in individual equity issues in that
market.
(c) For exchange rates, the risk
measurement system should
incorporate
risk
factors
corresponding to the individual
foreign currencies in which the
banks positions are denominated.
Since the value-at-risk (VaR) figure
calculated by the risk measurement
system will be expressed in
Philippine peso, any net position
denominated in a foreign currency
will introduce a foreign exchange
risk. Thus, there must be risk factors
corresponding to the exchange rate
between the Philippine peso and
each foreign currency in which the
bank has a significant exposure.
IV. Quantitative Standards
8. Banks will have flexibility in devising
the precise nature of their models, but
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05.12.31
the following minimum standards shall

apply for the purpose of calculating their
capital charge:
(a) Value-at-risk (VaR) must be
computed on a daily basis.
(b) In calculating VaR, a 99th percentile,
one-tailed confidence interval is to
be used.
(c) In calculating VaR, an instantaneous
price shock equivalent to a 10-day
movement in prices is to be used,
i.e., the minimum holding period
will be ten (10) trading days. Banks
may use VaR numbers calculated
according to shorter holding periods
scaled up to ten (10) days by the
square root of time. (For the
treatment of options, also see
paragraph (h) below.)
(d) The choice of historical observation
period (sample period) for
calculating VaR will be constrained
to a minimum length of one (1) year.
For banks that use a weighting
scheme or other methods for the
historical observation period, the
effective observation period must
be at least one (1) year (that is, the
weighted average time lag of the
individual observations cannot be
less than six (6) months).
(e) Banks should update their data sets
no less frequently than once every
three (3) months and should also
reassess them whenever market
prices are subject to material
changes. The BSP may also require
a bank to calculate its VaR using a
shorter observation period if in the
BSPs judgment, this is justified by a
significant upsurge in price volatility.
(f) No particular type of model is

prescribed. So long as each model
used captures all the material risks
run by the bank, as set out in Part
III, banks will be free to use models
based, for example on variancecovariance matrices, historical
simulations, or Monte Carlo
simulations.
(g) Banks will have discretion to
recognize empirical correlations
within broad risk categories (e.g.,
interest rates, exchange rates and
equity prices, including related
options volatilities in each risk
factor category). The BSP may
also
recognize
empirical
correlations across broad risk factor
categories, provided that the BSP is
satisfied that the banks system for
measuring correlations is sound and
implemented with integrity.
(h) For banks with option transactions,
banks models must accurately
capture the unique risks associated
with options within each of the
broad risk categories. The following
criteria apply to the measurement
of options risk:
-
Banks models must capture

the
non-linear
price
characteristics of options
positions;
Banks are expected to

ultimately move towards the
application of a full 10-day
price shock to options
positions or positions that
display option-like characteristics.
In the interim, the BSP may require
banks to adjust their capital
measure for options risk through
APP. 46
05.12.31
other methods, e.g., periodic

simulations or stress testing; and
-
Each banks risk measurement

system must have a set of risk
factors that captures the
volatilities of the rates and
prices underlying option
positions, i.e., vega risk. Banks
with relatively large and/or
complex options portfolios
should
have
detailed
specifications of the relevant
volatilities. This means that
banks should measure the
volatilities of options positions
broken down by different
maturities.
(i) Each bank must meet, on a daily

basis, a capital requirement
expressed as the higher of (i) last
trading days VaR number or (ii) an
average of the daily VaR measures
on each of the preceding sixty (60)
trading days (both measured
according to the parameters
specified in this section) multiplied
by a multiplication factor.
(j) The multiplication factor shall be set
by the BSP on the basis of its
assessment of the quality of the
banks risk management system
subject to an absolute minimum of
three (3). Banks will be required to
add to this factor a plus directly
related to the ex-post performance
of the model (to be determined on
a quarterly basis), thereby
introducing a built-in positive
incentive to maintain the predictive
quality of the model. The plus will
range from 0 to 1 based on the
number of backtesting exceptions
(i.e., the number of times that actual/
hypothetical loss exceeds the VaR
measure) for the past 250 trading

days of the reference quarter-end as
set out in Table 5 of the Instructions
for Accomplishing the Report on
Computation of the Adjusted RiskBased Capital Adequacy Ratio
Covering Combined Credit Risk and
Market Risk. (Table 3 for banks with
expanded derivatives authority but
without option transactions, and
banks without expanded derivatives
authority.)
(k) Banks using models will be subject
to a separate capital charge to cover
the specific risk of interest raterelated instruments and equity
securities as defined in the
standardized approach to the extent
that this risk is not incorporated into
their models. However, for banks
using models, the total specific risk
charge applied to interest raterelated instruments or to equities
should in no case be less than half
the specific risk charges calculated
according to the standardized
methodology.
V. Stress Testing
9. Banks using internal models for
measuring market risk capital
requirements must have in place a
rigorous and comprehensive stress
testing program. Stress testing to
identify events or influences that could
greatly impact banks is a key component
of a banks assessment of its capital
position.
10. Banks stress scenarios should cover
a range of factors that can create
extraordinary losses or gains in trading
portfolios, or to make the control of
risks in those portfolios very difficult.
These factors include low-probability
APP. 46
05.12.31
events in all major types of risks,

including the various components of
market, credit, and operational risks.
Stress scenarios should shed light on the
impact of such events on positions that
display both linear and non-linear price
characteristics (i.e., options and
instruments that have options-like
characteristics).
11. Banks stress tests should be both of a
qualitative and quantitative nature,
incorporating both market risk and
liquidity aspects of market disturbances.
Quantitative criteria should identify
plausible stress scenarios to which
banks could be exposed. Qualitative
criteria should emphasize that two (2)
major goals of stress testing are to
evaluate the capacity of the banks
capital to absorb potential large losses
and to identify steps the bank can take
to reduce its risk and conserve capital.
This assessment should be integral to
setting and evaluating the banks
management strategy and the results of
stress testing should be regularly
reported to senior management and,
periodically, to the board of directors
(or equivalent management committee
in the case of Philippine branches of
foreign banks).
12. Banks should combine the use of
supervisory stress scenarios with stress
tests developed by banks themselves to
reflect their specific risk characteristics.
Specifically, the BSP may ask banks to
provide information on stress testing in
the following three (3) broad areas:
(a) Supervisory scenarios requiring no
simulation by the bank. Banks
should provide the BSP information
on the largest losses experienced
during the reference quarter. This
loss information could be compared
to the level of capital that results

from a banks internal measurement
system. For example, it could
provide BSP with a picture of how
many days of peak day losses would
have been covered by a given VaR
estimate.
(b) Scenarios requiring a simulation
by the bank. Banks should subject
their portfolios to a series of
simulated stress scenarios and
provide BSP with the results.
These scenarios could include
testing the current portfolio against
past periods of significant
disturbance, for example, the early
80s banking crisis or the 1997
Asian financial crisis, incorporating
both the large price movements
and the sharp reduction in
liquidity associated with these
events. A second type of scenario
would evaluate the sensitivity of the
banks market risk exposure to
changes in the assumptions about
volatilities and correlations.
Applying this test would require an
evaluation of the historical range of
variation for volatilities and
correlations and evaluation of the
banks current positions against the
extreme values of the historical
range. Due consideration should
be given to the sharp variation that
at times has occurred in a matter of
days in periods of significant market
disturbance.
(c) Scenarios developed by the bank
itself to capture the specific
characteristics of its portfolio. A
bank should also develop its own
stress test which it identifies as most
adverse based on the characteristics
of its portfolio. It should provide the
BSP with a description of the
APP. 46
05.12.31
methodology used to identify and

carry out the scenarios, as well as
with the description of the results
derived from these scenarios.
The results should be reviewed
periodically by senior management
and should be reflected in the
policies and limits set by
management and the board of
directors (or equivalent management
committee in the case of Philippine
branches of foreign banks).
Moreover, if a banks testing reveals
particular vulnerability to a given set
of circumstances, the BSP would
expect the bank to take prompt steps
to manage those risks appropriately
(e.g., by hedging against that
outcome or reducing the size of its
exposures).
VI. External Validation
13. The validation of models accuracy by
external auditors and the BSP should
at a minimum include the following
steps:
(a) Verify that the internal validation
processes described in Part II,
paragraph 6 (h) are operating in a
satisfactory manner;
(b) Ensure that the formulae used in the
calculation process, as well as for
the pricing of options and other
complex instruments, are validated
by a qualified unit, which in all cases
should be independent from the
trading area;
(c) Check that the structure of internal
models is adequate with respect to
the banks activities and
geographical coverage;
(d) Check the results of the banks

backtesting of its internal
measurement system (i.e., comparing
VaR estimates with actual profits and
losses) to ensure that the model
provides a reliable measure of
potential losses over time. This
means that banks should make the
results, as well as the underlying
inputs to their VaR calculation,
available to the BSP and/or external
auditors on request; and
(e) Make sure that data flows and
processes associated with the risk
measurement
system
are
transparent and accessible. In
particular, it is necessary that
auditors or the BSP is in a position
to have easy access, whenever they
judge it necessary and under
appropriate procedures, to the
models specifications and
parameters.
VII. Combination of Internal Models and
the Standardized Methodology
14. Unless a banks exposure to a particular
risk factor is insignificant, the internal
models approach will require banks to
have an integrated risk measurement
system that captures the broad risk
factor categories (i.e., interest rates,
exchange rates and equity prices, with
related option volatilities being
included in each risk factor category).
A bank which has developed one or
more models will no longer be able to
revert to measuring the risk measured
by those models according to the
standardized methodology (unless the
BSP withdraws approval for that model).
15. The following conditions will apply to
banks using such combinations:
APP. 46
05.12.31
(a) Each broad risk factor category

must be assessed using a single
approach (either internal models
or the standardized approach),
i.e., no combination of the two (2)
methods will be permitted within
a risk category or across banks
different entities for the same type
of risk;
(b) All the criteria laid down in this Annex
will apply to the models being used;
(c) Banks may not modify the
combination of the two (2)
approaches they use without
justifying to the BSP that they have

a good reason for doing so;
(d) No element of market risk may
escape measurement, i.e., the
exposure for all the various risk
factors, whether calculated
according to the standardized
approach or internal models, would
have to be captured; and
(e) The capital charges assessed under
the standardized approach and
under the models approach are to
be aggregated according to the
simple sum method.
APP. 46a
05.12.31
MARKET RISK CAPITAL TREATMENT FOR

DOLLAR-LINKED PESO NOTES
1. Treatment of interest rate risk.
Dollar-linked Peso Notes (DLPNs) booked
under Trading Account Securities (TAS) or
Available for Sale Securities (ASS) result in interest
rate risk. These exposures shall be included
in the report forms in the following manner:
-
Under the standardized approach. The

market value of the DLPN shall be
reported in Part I.1, Item I.1, and Part
I.2, US dollar ladder, under the coupon
and time band corresponding to the
DLPNs residual maturity; and
Under the internal models approach.
DLPN exposures must be included in
the computation of Value-at-Risk (VaR)
measure for interest rate risk. This VaR
measure shall be reported in Part V, Item
1 (for banks with expanded derivatives
authority), or Part IV, Item 1 (for banks
with expanded derivatives authority but
without option transactions and for
authority).
2. Treatment of foreign exchange risk.

DLPNs booked under TAS, ASS or
Investment in Bonds and other Debt
Instruments (IBODI) result in foreign
exchange risk. These exposures shall be
included in the report forms in the following
manner:
-
Under the standardized approach. The

market value of the DLPN shall be
included in the computation of the net
long/(short) position for US dollar to be
reported in Part III; and
Under the internal models approach.

DLPN exposures must be included in
the computation of VaR measure for
foreign exchange risk. This VaR
measure shall be reported in Part V, Item
2 (for banks with expanded derivatives
authority), or Part IV, Item 2 (for banks
with expanded derivatives authority but
without option transactions, and for
authority).
APP. 46b
05.12.31
INSTRUCTIONS FOR ACCOMPLISHING THE REPORT ON COMPUTATION OF

THE ADJUSTED RISK-BASED CAPITAL ADEQUACY RATIO COVERING
COMBINED CREDIT RISK AND MARKET RISK
(For Universal Banks and Commercial Banks
With Expanded Derivatives Authority)
General Instructions
1. All universal banks and commercial
banks are required to complete this Report
both on a solo basis (i.e., head office plus
branches) and on a consolidated basis (i.e.,
parent bank plus subsidiary financial allied
companies).
2. The Report should be submitted as
follows:
(a) Solo report - within 15 banking days
after the end of each reference quarter; and
(b) Consolidated report - within 30
banking days after the end of each reference
quarter.
3. Current market value should be
used for reporting. For leveraged
instruments where the apparent notional
amount differs from the effective notional
amount, the bank should use the effective
notional amount in calculating the market
value for reporting, e.g., a swap contract
with a stated notional amount of PHP1.0
million, the terms of which call for a
quarterly settlement of the difference
between 5% and PHIBOR multiplied by 10
has an effective notional amount of
PHP10.0 million.
4. Securities transactions are to be
reported on a trade date basis.
Definitions and Clarifications
The risks subject to this reporting

requirement are:
(a) the risks pertaining to interest raterelated instruments and equities in the
banks trading book; and
(b) foreign exchange risk throughout
the bank.
The Report should include the
reporting banks positions in on-balance
sheet financial instruments and offbalance sheet derivatives, the latter being
defined as financial contracts whose
values depend on the values of one or
more underlying assets or indices.
6. For the purpose of the Report, the
trading book of a bank shall consist of:
(a) its proprietary positions in financial
instruments which are taken on with the
intention of short-term resale or benefiting
in the short term from actual or expected
differences between the buying and selling
prices or from other price or interest rate
variations;
(b) positions which arise from the
execution of trade orders from customers
and market making; and
(c) positions taken in order to hedge
other elements of the trading book.
7. The financial instruments referred to
in the preceding paragraph include:
(a) (i) transferable securities;
(ii) units in collective investment
undertakings;
(b) certificates of deposit and other
similar capital market instruments;
(c) financial futures contracts;
(d) forward contracts including forward
rate agreements;
APP. 46b
05.12.31
(e) swaps; and

(f) options.
8. Banks are expected to have an
established policy for allocating transactions
(including internal deals) to the trading or
non-trading (i.e., banking) book, as well as
procedures to ensure compliance with such
policy. There must be a clear audit trail at
the time each transaction is entered into and
the BSP will examine the adequacy of such
policy and procedures and their consistent
implementation when it is considered
necessary. For this purpose, banks which
engage in trading activities should submit
to the BSP a policy statement covering:
(a) the definition of trading activities;
(b) the financial instruments which can
be traded or used for hedging the trading
book portfolio; and
(c) the principles for transferring
positions between the trading and the
banking books.
9. In general, the BSP will have regard
to the banks intention in entering into a
particular transaction when determining
whether such transaction should fall into the
trading book. Transactions will likely be
considered to carry a trading intent on the
part of the bank if:
(a) the positions arising from the
transactions are marked to market on a daily
basis as part of the internal risk management
process;
(b) the positions are not (or not intended
to be) held to maturity; and
(c) the positions satisfy other criteria the
bank applies to its trading portfolio on a
consistent basis.
10. Debt securities include both fixedrate and floating-rate instruments, negotiable
certificates of deposit, non-convertible
preference shares, and also convertible
bonds (i.e., debt issues or preference shares
that are convertible, at a stated price, into
common shares of the issuer) which trade

like debt securities. Debt related derivatives
include bond futures and bond options.
Options are subject to special treatment
described in detail under Part IV of Specific
Instructions.
11. Interest rate derivatives include all
derivatives contracts and off-balance sheet
instruments which react to changes in
interest rates, e.g., interest rate futures, forward
rate agreements (FRAs), interest rate and cross
currency swaps, interest rate options and
forward foreign exchange positions. As noted
above, the treatment for options is described
in Part IV of Specific Instructions.
12. Detailed offsetting rules applicable
to the reporting of positions are set out in
the relevant parts of Specific Instructions.
These offsetting rules can be applied on
both the solo and consolidated basis,
provided that in the latter case there are no
obstacles to the quick repatriation of profits
from a foreign subsidiary to the Philippines
and the bank performs daily management
of risks on a consolidated basis. For this
purpose, offsetting means the exclusion of
matched positions of a bank from reporting
and hence exclusion of such positions from
the calculation of the adjusted capital
adequacy ratio.
13. For avoidance of doubt, items that are
deductible from the qualifying capital of the
bank in the calculation of the risk-based
capital adequacy ratio pursuant to Subsections
X116.1.a to X116.1.c of the Manual of
Regulations for Banks are excluded from
market risk capital requirement.
14. In general, banks are only required
to complete Parts I to IV and VI of the
Report. Banks which have obtained the
BSPs approval to adopt their internal valueat-risk (VaR) models to calculate their market
risk capital charge (in all or individual risk
APP. 46b
05.12.31
categories) should complete Part V (in lieu of

Parts I to IV). Where the internal model is used
to calculate only selected risk categories, the
capital charge for the risk categories
measured under the internal models
approach should be reported in Part V
while that for the other risk categories
measured under the standardized
approach should be reported in the
relevant sections of Parts I to IV. This
combination of the standardized
approach and the internal models
approach is allowed on a transitional
basis. Banks which adopt the internal
models approach will not be permitted,
save in exceptional circumstances, to
revert to the standardized approach.
Specific Instructions
Part I Interest Rate Exposures
1. Debt securities and debt related
derivatives specific risk
15. Report in this part the long and short
positions in debt securities and debt
derivatives (e.g., bond futures and bond
options) in the trading book by category of
the issuer. Offsetting will be allowed
between long and short positions in
identical issues (including positions in
derivatives) with exactly the same issuer,
coupon, currency and maturity. For items
1.4 to 1.7 of the Report, positions should
be slotted into the appropriate time bands
according to the residual maturities of the
debt securities (or the underlying securities
in case of debt derivatives). (Refer to
examples (1) and (2) in Annex A).
16. A security, which is the subject of a
repurchase agreement, will be treated as if
it were still owned by the seller of the
security, i.e., to be reported by the seller.
This principle applies also in Part 1.2 of the
Report. Commitments to buy and sell
securities should be reported as long and

short positions, respectively.
17. Foreign countries, foreign incorporated
banks and Philippine incorporated banks/
quasi banks with the highest credit quality,
as well as debt securities with the highest
credit quality refer to ratees/debt securities
given the minimum credit ratings as
indicated below by any two of the following
internationally accepted rating agencies:
Rating Agency
(a) Moodys
(b) Standard and Poors
(c) Fitch IBCA
Credit Rating
Aa3 and above
AA- and above
AA- and above
and such other recognized international

rating agencies as may be approved by the
Monetary Board.
The ratings of domestic rating agencies
may likewise be used for this purpose
provided that such rating agencies meet the
criteria to be prescribed by the Monetary
Board.
18. Multilateral development banks
refer to the World Bank Group comprised
of the International Bank for Reconstruction
and Development (IBRD) and the
International Finance Corporation (IFC), the
Asian Development Bank (ADB), the African
Development Bank (AfDB), the European
Bank for Reconstruction and Development
(EBRD), the Inter-American Development
Bank (IADB), the European Investment Bank
(EIB); the Nordic Investment Bank (NIB); the
Caribbean Development Bank (CDB), the
Council of Europe Development Bank
(CEDB) and such others as may be
recognized by the BSP.
19. Non-central government public
sector entities of a foreign country refer to
entities which are regarded as such by a
recognized banking supervisory authority in
the country in which they are incorporated.
APP. 46b
05.12.31
2. Debt securities, debt related

derivatives and interest rate derivatives
general market risk
20. Report in this part the long and
short trading book positions in debt
securities and debt derivatives described
above, as well as interest rate derivatives.
Report also interest rate exposures arising
from futures contracts and forward positions
in equities. A Maturity Method is adopted
for the reporting of these positions as
detailed below. Banks that possess the
necessary capability to calculate the
duration and price sensitivity of each
position separately and wish to adopt such
a duration approach for reporting in this part
may seek approval from BSP.
21. Positions should be reported
separately for each currency, i.e., banks
should use separate sheets (Part I.2 of the
Report) to report positions of different
currencies. The unadjusted market risk
capital charge is then calculated for each
currency according to procedures set out
in paragraphs 31 to 34 with no offsetting
between different currencies.
22. Under the Maturity Method,
positions are slotted into the time bands of
the maturity ladder (as shown in Part I.2 of
the Report) by remaining maturity if fixed
rate and by the period to the next repricing
date if floating rate. (Refer to examples (1)
and (2) in Annex A). Derivatives should be
treated as combinations of long and short
positions. The maturity of an interest rate
future or a forward rate agreement will be
the period until delivery or exercise of the
contract, plus where applicable the life
of the underlying instrument. For example,
a long position in a June 3-month interest
rate future taken in December is to be
reported at end of December as a long
position in a zero coupon government
security in that particular currency with a
maturity of 9 months and a short position

in a zero coupon government security with
a maturity of 6 months. (Refer to examples
(5) and (6) in Annex A). The market values
of the two positions should be reported. For
forward foreign exchange positions in the
trading book, they should be treated as long
and as short positions in a zero coupon
government security of the 2 currencies
with the same maturity as the forward
contract. (Refer to example (8) in Annex
A).
23. For a bond future, where a range of
deliverable instruments may be delivered
to fulfill the contract, the bank has flexibility
to elect which deliverable security goes into
the maturity ladder but should take account
of any conversion factor defined by the
exchange. A two-leg approach will be
adopted similar to the above. A long bond
future will be taken as a long position in a
deliverable bond and a short position in a
zero coupon security maturing at the
futures delivery date. For example, a long
futures contract on a 5 year fixed rate
security with delivery 3 months from the
reporting date will be reported as a long
position in say, a 5.25 year security, i.e., a
specific security which is within the range
of deliverables under the futures contract
(as opposed to a notional/theoretical
security), and a short position in a 3 months
zero coupon security. (Refer to example
(3) in Annex A).
The amount to be reported in the above
example for both legs will be the contract
face value divided by the relevant
conversion factor and multiplied by the
current cash price of the selected
deliverable bond. A forward bond
transaction (i.e., with a settlement period
longer than the market norm) will be treated
similarly, i.e., a long bond forward will be
reported as long position in the bond and a
short position in a zero coupon security up
APP. 46b
05.12.31
to the forward delivery date. The current

market value (at spot price) of the bond
should be reported.
24. Swaps will be treated as two
positions in securities with the relevant
maturities. For example, an interest rate
swap under which a bank is receiving
floating rate interest and paying fixed will
be treated as a long position in a floating
rate instrument of maturity equivalent to the
period until the next interest fixing and a
short position in a fixed-rate instrument of
maturity equivalent to the residual life of
the swap. The market values of the 2
instruments should be reported. (Refer to
example (4) in Annex A). For swaps that pay
or receive a fixed or floating interest rate
against some other reference price, e.g., an
equity price, the interest rate component
should be slotted into the appropriate maturity
category, with the equity component being
included in the equity framework. The
separate legs of cross-currency swaps are to
be reported in the relevant maturity ladders
for the currencies concerned. (Refer to
example (12) in Annex A).
25. As with the reporting under Part I.1
of the Report, banks can offset long and
short positions in identical instruments with
exactly the same issuer, coupon, currency
and maturity for general market risk
purposes. Similarly, a matched position in a
futures or forward contract and its underlying
may be fully offset. However, the leg
representing the time to expiry of the futures
or forward contract should be reported.
For example, a bank has a long position
in a particular bond and sells forward (i.e.,
beyond the normal settlement period for the
security) such a bond as at the reporting
date. The long and short positions in the
bond can be offset but a long position in a
(notional) zero coupon security with
maturity at the forward delivery date should
be reported, at the current market value of
the bond. Similarly, if the bank has a short

position in a bond future and a long
position in the underlying bond, such
positions can be offset. A long position
up to the futures delivery date should,
however, be reported.
When the futures contract comprises a
range of deliverable instruments, offsetting
of positions in the futures contract and its
underlying is only permissible in cases
where there is a readily identifiable
underlying security which is most profitable
for the trader with a short position to deliver,
i.e., the cheapest to deliver. This means
that offsetting is only permitted between a
short future and a long bond, not between
a long future and a short bond; and the long
bond must be the one that is cheapest to
deliver. The amount to be reported for the
remaining long position up to the futures
contracts delivery date will be the face
value of the contract divided by the relevant
current spot price of the cheapest to
deliver bond.
26. Opposite positions in the same
category of derivatives instruments
(including the delta-equivalent value of
options where the delta-plus approach for
options is adopted see Part IV of the
Report) can in certain circumstances be
regarded as matched and allowed to offset
fully. The separate legs of different swaps
may also be matched subject to the same
conditions. To qualify for this treatment,
the positions must relate to the same
underlying instruments, be of the same
nominal value and be denominated in the
same currency. In addition:
(a) for futures: offsetting positions in the
notional or underlying instruments to which
the futures contract relates must be for
identical products and mature within 7 days
of each other;
(b) for swaps and forward rate
agreements (FRAs): the reference rate (for
APP. 46b
05.12.31
floating rate positions) must be identical and

the coupon closely matched (i.e., within 15
basis points); and
(c) for swaps, FRAs and forwards: the
next interest fixing date or, for fixed coupon
positions or forwards, the residual maturity
must correspond within the following limits:
- if either of the instruments for
offsetting has an interest fixing date or
residual maturity up to 1 month, the interest
fixing date or residual maturity must be the
same for both instruments;
offsetting has an interest fixing date or residual
maturity greater than 1 month and up to 1
year, those dates or residual maturities must
be within 7 days of each other; and
residual maturity over 1 year, those dates
or residual maturities must be within 30 days
of each other.
For example, a bought and a sold FRA
in the same currency with the same face
value and settlement date as well as notional
deposit maturity date can be offset against
each other and excluded from reporting if
the contract rates are within 15 basis points
of each other. Similarly, opposite swap
positions in the same currency with the same
face value and reference dates can be offset
if, say, the floating rate in both cases is 6
months PHIBOR and the fixed rates are
within 15 basis points of each other. The
positions can still be offset if the reference
dates (i. e., the next interest fixing date or
remaining maturity) of the opposite positions
are different but within the range as set out
in (c) above. Opposite bond futures can,
for example, be offset against each other if
the deliverable bonds are of the same type
and mature within 7 days of each other.
27. Banks with the necessary expertise
*
**
and systems may use alternative formulae

(the so called pre-processing techniques)
to calculate the positions to be included in
the maturity ladder. This applies to all
interest rate sensitive positions, arising from
both physical and derivative instruments.
One method is to first convert the payments
required under each transaction into their
present values. For that purpose, each cash
flow should be discounted using zerocoupon yields. A single net figure of all of
the cash flows within each time band may be
reported. Banks wishing to adopt this or other
methods for reporting should seek the BSPs
prior approval. The pre-processing models
would be subject to review by the BSP.
Calculation of capital charges for interest
rate exposures reported in Part I
28. The unadjusted minimum capital
requirement is expressed in terms of two
separately calculated charges, one applying
to the specific risk of each trading book
position in debt securities or debt
derivatives, whether it is a short or long
position, and the other to the overall interest
rate risk in the trading book portfolio
(termed general market risk) where long
and short positions in different securities or
derivatives can be offset subject to certain
disallowances.
Specific risk
29. The unadjusted specific risk charge
is graduated into five broad categories by
types of issuer, as follows:
Government and
multilateral
development banks* 0.00%
Qualifying**
0.25% (residual maturity of 6
months or less)
1.00% (residual maturity of
over 6 months to 24 months)
Government and multilateral development banks refers to the issuers as described under items 1.1 and 1.3 in Part I.1
of the Report.
Qualifying refers to the issuers/issues as described under items 1.4 to 1.7 in Part I.1 of the Report.
APP. 46b
05.12.31
LGU bonds***
Others
1.60% (residual maturity of

over 24 months)
4.00%
8.00%
30. Interest rate and currency swaps,

FRAs, forward foreign exchange contracts
and interest rate futures will not be subject
to a specific risk charge. In the case of
futures contracts where the underlying is a
debt security, a specific risk charge will
apply according to the issuer (and the
remaining maturity) as set out in the above
paragraph.
General market risk
31. General market risk applies to
positions in all debt securities, debt
derivatives and interest rate derivatives,
subject only to an exemption for fully or
very closely matched positions in identical
instruments as described in paragraphs 25
to 26 above. The unadjusted capital charge
is the sum of the following components:
(a) the net short or long weighted
position in the whole trading book;
(b) a small proportion of the matched
positions in each time band (the vertical
disallowance); and
(c) a larger proportion of the matched
positions across different time-bands (the
horizontal disallowance).
32. In the maturity ladder, first calculate the
weighted positions by multiplying the
positions reported in each time band by a
risk-factor according to the following table:
Table 1
Maturity method: time bands and
weights
Coupon
3% or more
1 month or less
Over 1 month to
3 months
Coupon
less than 3%
1 month or less
Over 1 month to
3 months
Risk
weight
0.00%
0.20%
Over 3 months
to 6 months
Over 6 months to
12 months
Over 1 year to
2 years
Over 2 years to
3 years
Over 3 years to
4 years
Over 4 years to
5 years
Over 5 years to
7 years
Over 7 years to
10 years
Over 10 years to
15 years
Over 15 years to
20 years
Over 20 years
Over 3 months to
6 months
Over 6 months to
12 months
Over 1.0 year to
1.9 years
Over 1.9 years to
2.8 years
Over 2.8 years to
3.6 years
Over 3.6 years to
4.3 years
Over 4.3 years to
5.7 years
Over 5.7 years to
7.3 years
Over 7.3 years to
9.3 years
Over 9.3 years to
10.6 years
Over 10.6 years to
12 years
Over 12 years to
20 years
Over 20 years
0.40%
0.70%
1.25%
1.75%
2.25%
2.75%
3.25%
3.75%
4.50%
5.25%
6.00%
8.00%
12.50%
33. The weighted longs and shorts in

each time band will be offset resulting in a
single short or long position for each band.
A 10% capital charge (vertical
disallowance) will be levied on the smaller
of the offsetting positions, be it long or short.
Thus, if the sum of the weighted longs in a
time band is P100.0 million and the sum of
the weighted shorts is PHP90.0 million, the
vertical disallowance would be 10% of
PHP90.0 million (i.e., PHP9.0 million).
34. Two rounds of horizontal
offsetting will then be conducted, first
between the net positions in each of 3 zones
(zero to 1 year, over 1 year to 4 years and
over 4 years), and subsequently between the
net positions in the 3 different zones. The
offsetting will be subject to a scale of
disallowances expressed as a fraction of the
matched positions, as set out in Table 2
below. The weighted long and short
positions in each of 3 zones may be offset,
*** LGU bonds refers to bonds issued by local government units (LGUs), covered by Deed of Assignment of Internal Revenue
Allotment of the LGU and guaranteed by LGU Guarantee Corporation.
APP. 46b
05.12.31
subject to the matched portion attracting a

disallowance factor that is part of the capital
charge. The residual net position in each
zone may be carried over and offset against
opposite positions in other zones, subject
to a second set of disallowance factors.
Table 2
Horizontal disallowances
Zones
Time-band
1 month or less
Over 1 month to
3 months
Zone 1Over 3 months to
6 months
Over 6 months to
12 months
Over 1 year to
2 years
Zone 2Over 2 years to
3 years
Over 3 years to
4 years
Over 4 years to
5 years
Over 5 years to
7 years
Zone 3 Over 7 years to
10 years
Over 10 years to
15 years
Over 15 years to
20 years
Over 20 years
Within Between Between

the adjacent zones
zone zones 1and 3
40%
40%
30%
100%
40%
30%
Part II Equity Exposures

positions in equities and equity derivatives
in the trading book, including instruments
that exhibit market behavior similar to
equities. The instruments covered
include common stock (whether voting or
non-voting), convertible bonds (i.e., debt
issues or preference shares that are
convertible, at a stated price, into

like equities and commitments to buy or
sell equity securities. For non-convertible
preference shares and those convertible
bonds which trade like debt securities,
they should be reported under Part I.
Equity derivatives include forwards,
futures and swaps on both individual
equities and or stock indices. Options
should be included subject to the specific
instructions set out in Part IV. Long and
short positions in the same issue may be
reported on a net basis.
36. The positions are to be reported
on a market-by-market basis, i.e., under
separate columns to indicate the
exchange where the reported equities are
listed/traded. For foreign markets, banks
should indicate the country where the
market is located. (Refer to example (9)
in Annex A) Equities with listing in more
than one market should be reported as
positions in the market of their primary
listing.
37. Equity derivatives are to be
converted into positions in the relevant
underlying. Futures and forward contracts
relating to an individual equity should be
reported at current market values. Futures
relating to equity indices can be reported
either as the current index value times the
monetary value of one index point set by
the exchange, i.e., the tick value, or the
marked-to-market value of the notional
underlying equity portfolio. (Refer to
38. Matched positions in each identical
equity or index (same delivery months) in
each market may be fully offset, resulting
in a single net short or long position. A
future in a given equity may be offset
against an opposite cash position in the
same equity but the interest rate exposure
APP. 46b
05.12.31
arising out of the equity futures should

be reported in Part I. For example, a short
futures contract on a specific stock with
delivery 3 months from the reporting date
can be offset against a long position in
the underlying stock. However, the
interest rate exposure arising out of the
equity futures should be reported as a
long position in the 1 to 3 months time
band of the stock denominated currency
in Part I. The position should be reported
as the current market value of the stock.
39. An equity swap obligates a bank to
receive an amount based on the change in
value of a particular equity or equity index
and also to pay an amount based on the
change in value of a different equity or
equity index. Accordingly, the receipt side
and the payment side of an equity swap
contract should be reported as a long and
a short position, respectively. For an
equity swap contract which involves a leg
relating to a financial instrument other
than equities or equity derivatives, for
example, receiving/paying a fixed or
floating interest rate, the exposure should
be slotted into the appropriate maturity
band in Part I. Where equities are part of
a forward contract (equities to be received
or to be delivered), any interest rate
exposure from the other leg of the
contract should be reported in Part I. The
treatment is similar to that set out in
paragraph 38. The same arrangement
applies for index futures. (Refer to
40. As with interest rate exposures,
the capital charge is levied to separately
cover both the specific risk and the
general market risk. Calculation is done
on an individual market basis. The
unadjusted capital charge for specific risk
will be 8% on the gross (i.e., long plus
short) positions. The unadjusted general
market risk charge will be 8% on the net
position. Net long and short positions in

different markets cannot be offset for the
purpose of calculating general market risk
charge.
Part III Foreign Exchange Exposures
41. Report in this part the amount in US
dollars (USD) of net long or net short
position in each currency. The net deltabased equivalent of foreign currency options
should also be reported for each currency,
subject to the specific instructions in Part
IV. In addition, structural positions taken
deliberately to hedge against the effects of
exchange rate movements on the capital
adequacy of the reporting bank may be
excluded. This should be cleared with the
BSP prior to reporting.
42. Net long/(short) position shall refer
to FX assets (excluding FX items allowed
under existing regulations to be excluded
from FX assets in the computation of a
banks net FX position limits) less FX
liabilities (excluding FX items allowed
from FX liabilities in the computation of
a banks net FX position limits), plus
contingent FX assets less contingent FX
liabilities, including net delta weighted long/
(short) position of options (subject to a
separately calculated capital charge for
gamma and vega described in Part IV.2).
Alternatively, if the bank engages in
purchase of options only, the options shall
be carved out and reported under Part IV.1.
Delta-weighted long and short positions
refer to potential purchases and sales of the
underlying, respectively. For example, a
short put option carries a potential purchase
of the underlying, thus will be treated as a
long delta-weighted position.
43. Banks which base their normal
management accounting of forward
currency positions on net present values
APP. 46b
05.12.31
shall use the net present values of each

position, discounted using current interest
rates, for measuring their positions.
Otherwise, forward currency positions shall
be measured based on notional amount.
44. The total USD amount of net long
or net short position in each currency should
then be converted at spot rates into
Philippine peso. The overall net open
position is the greater of the absolute value
of the sum of net long position or sum of
net short position.
report the sum of the capital charges

calculated.
Table 3
Simplified approach: capital charge for
purchased options only
Short cash
and
Long call
or
Long cash
and
Long put
45. The unadjusted capital charge will

be 8% of the overall net open position.
Part IV Options
46. Report in this part the positions of
option contracts which are related to the risk
categories reported in Parts I to III, using
either the Simplified Approach or the Delta
Plus Approach.
Long call
or
Long put
1. For banks that purchase options only

Simplified Approach
47. Banks will be considered to be
engaging only in purchase of options if at
any time all their written option positions
(if any) are hedged by perfectly matched
long positions in exactly the same options.
In this case such perfectly matched options
need not be reported and only the
outstanding long (purchased) options are
covered by the following approach.
48. Treatments for purchased options
with and without related cash positions are
summarized in Table 3 below. The capital
charge should be calculated separately for
each individual option (together with the
related cash position). Banks should then
The capital charge will be the

market value of the
underlying of the option
multiplied by the sum of
specific and general market
risk charges for the underlying
less the amount the option is
in the money (if any), with the
reduced capital charge
bounded at zero*.
(Refer to example (10) in
Annex A).
The capital charge will be the
lesser of:
a. the market value of the
underlying of the option
multiplied by the sum of
specific and general
market risk charges for
the underlying; and
b. the market value of the
option.**
49. The market risk capital charges to

be applied for the purpose of the above
paragraph are indicated in Table 4 below:
Table 4
Underlying
Specific
risk
charge
Debt instruments***:
Government and multilateral development
banks
Qualifying (with residual
maturity)
6 months or less
Over 6 months to
24 months
Over 24 months
0.00%
General
market
risk charge
As per the risk weights
in Table 1, according
to the residual maturity
(fixed rate) or next
repricing (floating rate).
0.25%
1.00%
1.60%
For options with a residual maturity of more than 6 months, the strike price should be compared with the forward, not
current, price. A bank unable to do this must take the in the money amount to be zero.
** Where the position does not fall within the trading book (i.e., options on certain foreign exchange position not belonging
to the trading book), it is acceptable to use the book value instead.
*** Issuer/issues classifications as per Part I.1 of the Report.
APP. 46b
05.12.31
LGU bonds
Others
Interest rate (non-debt
related)
Equity
4.00%
8.00%
0.00%
8.00%
8.00%
Foreign Exchange
0.00%
8.00%
50. In some cases such as foreign

exchange where it may be unclear which
currency is the underlying of the option,
this should be taken to be the asset which
would be received if the option is exercised.
In addition, the nominal value should be
used for items where the market value of
the underlying instrument could be zero,
e.g., caps and floors as well as swaptions.
2. For banks that write options Delta
Plus Approach
51. Banks that write options (apart from
those described in paragraph 47) should
report in Parts I to III the relevant deltaweighted positions of all their outstanding
options, i.e., the market value of the
underlying of the option multiplied by the
option delta. The relevant negative gamma
and vega sensitivities of these options
should be reported in Parts IV.2(a) to IV.2(c)
of the Report in order to capture the delta
sensitivity and volatility risk of these options.
Banks wishing to adopt alternate treatments
for their options such as a scenario approach
should seek prior approval from the BSP.
52. Delta-weighted option positions
with debt securities or interest rates as the
underlying will be slotted into the interest
rate time bands, as set out in Part I.2 of the
Report. A two-legged approach should be
used as for other derivatives, requiring one
entry at the time the underlying contract takes
effect and a second at the time the underlying
contract matures. In other words the reporting
mechanism would be the same as those for
the positions in the underlying instruments
of the options as presented in Parts I to III,
except that the market value of the underlying
instruments will be adjusted by the delta ratios

of the relevant options for reporting under this
approach. For instance:
(a) A bought call option on a June 3month interest-rate future will in March be
considered, on the basis of its deltaequivalent value, to be a long position with
a maturity of 6 months and a short position
with a maturity of 3 months. The written
option will similarly be slotted as a long
position with a maturity of 3 months and a
short position with a maturity of 6 months.
(b) A 2-month purchased call option on
a bond future where delivery of the bond
takes place in September would be
considered in March as being long the
deliverable bond and short a 6-month
government security in the same currency,
both positions being delta-weighted.
(c) Floating rate instruments with caps
or floors will be treated as a combination of
floating rate securities and a series of
European-style options, e.g., the holder of 2year floating rate security indexed to 6 month
LIBOR with a cap of 8% will treat it as:
(i) a debt security that reprices in 6
months; and
(ii) a series of 3 written call options on
a FRA with a reference rate of 8%, each with
a negative sign at the time the underlying
FRA takes effect and a positive sign at the
time the underlying FRA matures. (The rules
applying to closely matched positions set
out in paragraph 26 will also apply in this
respect.) (Refer to example (7) in Annex A).
53. The reporting of options with
equities as the underlying will also be based
on the delta-weighted positions which will
be incorporated in Part II of the Report. For
purposes of this calculation, each national
market is to be treated as a separate
underlying. For options on foreign exchange
position, the net delta-based equivalent of the
foreign currency options will be incorporated
into the measurement of the exposure for the
respective currency position. These delta
APP. 46b
05.12.31
positions will be reported in Part III of the

Report.
54. The net negative gamma positions
and vega positions of all outstanding options
(purchased or written) should also be reported
in Part IV.2. This is in addition to the delta
positions being reported in Parts I to III.
55. The net negative gamma positions
should be reported in the following way:
(a) for each individual option, a
gamma impact should be calculated by
the following formula:
Gamma impact = x Gamma x VU2
where VU = Variation of the underlying
of the option.
(b) VU will be calculated as follows:
- for debt and interest rate options of
which the delta-equivalent position is
reported in Part I, the market value of the
underlying or notional underlying
multiplied by the risk weights for the
appropriate time bands set out in Table 1;
- for options on equities and equity
indices, the market value of the underlying
multiplied by 8%; and
- for options on foreign exchange, the
market value of the underlying multiplied
by 8%.
(c) For the purpose of this calculation
the following positions should be treated as
the same underlying:
- for interest rate instruments, each
time band as set out in Table 1;
- for equities and equity indices, each
national market; and
- for foreign currencies, each
currency pair.
Banks with options relating to more
underlyings than the space provided should
report their positions in additional sheets.
(d) Each option on the same underlying
will have a gamma impact that is either
positive or negative. These individual
gamma impacts will be summed, resulting

in a net gamma impact for each underlying
that is either positive or negative. Only
those net gamma impacts that are negative
should be reported.
56. The vega charge should be reported
in the following way:
(a) The vega positions should represent
the risk in a proportional shift in volatility
of +25% for the underlying. For example,
an increase in volatility carries a risk of loss
for a short option of which the assumed
current (implied) volatility is 20%. With a
proportional shift of 25%, the vega position
has to be calculated on the basis of an
increase in volatility of 5 percentage points
from 20% to 25%. If the vega is calculated
as 1.68, i.e., a 1% increase in volatility
increases the value of the option by 1.68,
then the above change in volatility of 5
percentage points will increase the value
of the option by 8.4 (1.68 x 5) which
represents the vega position to be reported.
(b) Each option on the same underlying
will have a vega position that is either
positive or negative. These individual vega
positions will be summed, resulting in a net
vega position for each underlying that is
either positive or negative. The total vega
charge will be the sum of the absolute
values of the net vega positions obtained
for each underlying.
Part V Internal Models Approach
57. Only those banks which have
obtained the BSPs approval to adopt their
internal value-at-risk (VaR) models to
calculate their market risk capital charges
in lieu of the standardized methodology are
required to report in this part.
1.
Value-at-risk results
58. Report in this part the value-at-risk

(VaR) results as at the last trading day of the
APP. 46b
05.12.31
reference quarter in column (a) and the

average VaR over the most recent 60 trading
days of the reference quarter in column (b),
both for each individual market risk
category using internal models approach,
i.e., item 1.1 to 1.3, and for the aggregate
of these risk categories, i.e., item 1.4.
59. Provided that the BSP is satisfied
with the banks system for measuring
correlations, recognition of empirical
correlations across broad risk categories
(e.g., interest rates, equity prices and
exchange rates, including related options
volatilities in each risk factor category) may
be allowed. The VaR for the aggregate of
all risk categories will therefore not
necessarily be equal to an arithmetic sum
of the VaR for the individual risk category.
60. Report also in this part the number
of backtesting exceptions for the past 250
trading days (from the reference quarter-end
going backwards), based on:
- actual daily changes in portfolio
value, in item 1.4. column (c), and
- hypothetical changes in portfolio
value that would occur were end-of-day
positions to remain unchanged during the
1 day holding period, in item 1.4 column
(d),
for the aggregate of the broad risk
categories.
61. The multiplication factor to be
reported in item 1.4 column (e) is the
summation of the following 3 elements:
(a) the minimum multiplication factor
of 3;
(b) the plus factor ranging from 0 to
1 based on the number of backtesting
exceptions (i.e., the larger of item 1.4
column (c) or item 1.4 column (d)) for the
past 250 trading days as set out in Table 5
below: and
(c) any additional plus factor as may
Table 5
Plus factor based on the number of
backtesting exceptions for the past 250
trading days
Zone
Number of exceptions Plus factor
Green zone
Yellow zone
Red zone
0
1
2
3
4
5
6
7
8
9
10 or more
0.00
0.00
0.00
0.00
0.00
0.40
0.50
0.65
0.75
0.85
1.00
62. Capital charge for general market

risk calculated by internal models reported
in item 1.6 is larger of:
(a) Item 1.4 column (a), i.e., VaR for the
aggregate of all risk categories, as at the last
trading day of the reference quarter; or
(b) Item 1.5, i.e., the average VaR for
the last 60 trading days of the reference
quarter (item 1.4 column (b)) times the
multiplication factor (item 1.4 column (e))
set out in paragraph 61 above.
2. Specific risk
63. Capital charge for the specific risk
of debt securities and other debt related
derivatives, and equities and equity
derivatives is to be reported using either of
the following two methods:
(a) For banks which incorporate the
specific risk into their models, report the
capital charge for the total specific risk
calculated by the models in item 1.7 of Part
V.1; or
(b) For banks which do not incorporate
the specific risk into their models, report the
specific risk of debt securities and other debt
related derivatives in Part I.1 according to
the instructions in paragraphs 15-19 and 2930. For equities and equity derivatives,
APP. 46b
05.12.31
report the specific risk in Part II according

to the instructions in paragraphs 35 to 40.
credit risk, i.e., 10% as opposed to the BIS

recommended 8%.)
3. Largest daily losses over the quarter
66. The total market risk-weighted

exposure is computed by multiplying the
total market risk capital charges by 10. (The
multiplier 10 is the reciprocal of the BSP
required minimum capital ratio for credit
risk of 10%.) The qualifying capital and total
credit risk-weighted exposures are extracted
from Part V.A and Part V.B, respectively, of
the Report on the Computation of RiskBased Capital Adequacy Ratio covering
credit risk.
64. Report in this part in descending

order (i.e., the largest loss first) the 5 largest
daily losses over the reference quarter and
their respective VaRs for the risk exposures
which are measured by the internal models
approach. If the number of daily losses
during the quarter is less than 5, report only
all such daily losses.
Part VI Adjusted Capital Adequacy Ratio
65. The market risk capital charges
should be aggregated and converted to a
market risk-weighted exposure. The total
market risk capital charges is the sum of
the capital charges for individual market
risk categories computed using either (a)
the standardized approach, or (b) the
internal models approach. The total
capital charges for individual market risk
categories using the standardized approach
should be multiplied by 125% (to be
consistent with the higher capital charge for
67. For on-balance-sheet debt securities

and equities in the trading book included
in Parts I, II and V of this Report, the credit
risk-weighted exposures reported in Part II
of the Report on the Computation of the
Risk-Based Capital Adequacy Ratio covering
credit risk should be excluded in calculating
the adjusted ratio covering combined credit
risk and market risk. The market risk capital
charges for these positions calculated in this
Report cover all the capital requirements for
absorbing potential losses arising from
carrying such positions.
APP. 46b
05.12.31
Annex A
Suppose as at 31 December, 200X, ABC Bank Corporation has the following trading book
positions:
(1) Long position in US Treasury Bond
(7.5% annual coupon) with face value
equivalent to PHP507.000MM and residual
maturity of 8 years. Market value based on
quoted price: PHP518.914MM equivalent
(2) Long position in an unrated floating
rate note (6.25% current annual coupon)
issued by a US corporate with face value
equivalent of PHP260.000MM and next
repricing 9 months after. Market value
based on quoted price: PHP264.758MM
equivalent
(3) Long 10 futures contracts involving
5-year US Treasury Note (face value
USD0.100MM per contract) for delivery 3
months after. Selected deliverable: US
Treasury Note (coupon 6.375%) maturing
5.25 years, current price at 100.0625,
conversion factor 0.9423.
(4) Single currency interest rate swap
with face value PHP975.000MM and
residual maturity of 2.5 years, bank receives
annual floating rate interest and pays fixed
at 8% per annum. The current floating rate
is fixed at 5.5% with next repricing after 6
months.
(5) Long 10 futures contracts involving
3-month LIBOR interest rate (face value
GBP6.500MM per contract) for delivery 6
months after.
(6) An FRA sold on 6-month PHIBOR
with nominal amount PHP130.000MM and
settlement date 9 months after.
(7) A GBP2.000MM 2 year cap written
on GBP 6 month LIBOR at cap rate 8%,
next repricing after 6 months and remaining
maturity 2 years (i.e., the cap is written on
the reporting date).
(8) Forward foreign exchange position
of EUR5.000MM (long) against
PHP250.000MM equivalent maturing in 3
months.
(9) Long 1000 shares of a US listed

company with current market price of
PHP715.000MM equivalent.
(10) Long 50,000 shares of a Philippine
listed company hedged by a long position
in 25 put option contracts (each contract
represents 1,000 shares) for the same share.
The current market price for the share is
PHP195.00 and the exercise price of all the
option contracts is PHP214.50.
(11) Short one Hang Seng Index Futures
for delivery 3 months after, current index at
10,000.
(12) Currency swap with residual
maturity of 6 months. Bank receives
USD19.500MM at 9.5% per annum and
pays PHP975.000MM at 11% per annum.
Treatments:
(1) Report market value (PHP518.914MM)
of the long position in Part I.1, item I.2 and
Part I.2, USD ladder, 7 to 10 years time
band.
of the long position in Part I.1, item 1.9 and
Part I.2, USD ladder, 6 to 12 months time
band.
(3) Report selected Treasury Note (long
position) in Part I.1, item I.2 and Part I.2,
USD ladder, 5 to 7 year time band. Report
the same amount in short position, 1 to 3
months time band.
Assume spot exchange rate PHP50.00
Amount to be reported:
USD0.100MM x 10 x 100.0625%/0.9423
= USD1.062MM
= P53.095MM
APP. 46b
05.12.31
(4) Report the fixed rate leg as a short

2.5-year bond in Part I.2, Peso ladder, 2 to
3 years time band. Report the floating rate
leg as a long 6 months security in the 3 to 6
months time band.
Assume the Peso zero coupon yields are
as follows:
Period
1M
3M
6M
1Y
2Y
3Y
Zero Coupon (ZC)

5.31
5.63
5.81
6.16
6.69
7.07
(Zero coupon yields within 1 year can be

taken as cash rates, i.e., PHIBOR, zero
coupon yields beyond 1 year can be
constructed from, say, swap rates.)
Cash flows of Peso swap: 2 legs
Pay fixed rate bond
8% of PHP975.000MM in 6 months
Receive floating rate paper
105.5% of PHP975.000MM in 6 months
Zero-coupon rates at 18 months can be
obtained from the linear interpolation
between the 1Y and 2Y zero coupon rates.
ZC(18 months) = (6.16% + 6.69%)/2 =
6.425%
Similarly,
ZC(30 months) = (6.69% + 7.07%)/2 = 6.88%
PV of the fixed leg (i.e., pay side)
= PHP975.000MM
0.08
0.08 + 1.08
x ------------------------- + -----------------------(1+0.0581x0.5) (1+0.06425)1.5
1.08
+ ---------------------(1+0.0688)2.5
= PHP1,038.479MM
PV of the floating leg (i.e. receive side)

1.055
= PHP975.000MM x --------------------------(1+0.0581 x 0.5)
= PHP999.587MM
(5) Report a long 9 months zero
coupon security in Part I.2, GBP ladder, 6
to 12 months time band and a short 6
months zero coupon security in 3 to 6
months time band.
Assume the GBP 6 months zero-coupon
yield is 6.74% while the interpolated 9
months zero-coupon yield is 6.87%.
Assume spot exchange rate is PHP75.00.
9 months= GBP65.000MM/(1+0.0687 x 0.75)
= GBP65.000MM x 0.951
= PHP4,636.124MM equivalent
6 months= GBP65.000MM/(1+0.0674 x 0.5)
= GBP65.000MM x 0.9674
(6) Report a long 15 months zero

coupon security in Part I.2, Peso ladder, 1.0
to 1.9 years time band and a short 9 months
zero coupon security in 6 to 12 months time
band.
Calculations similar to (4) above,
ZC(15 months) = 6.16%+(6.69%-6.16%)x 0.25
= 6.2925%
15 months
= PHP130.000MM(1+0.062925)1.25
= PHP121.000MM
9 months
= PHP130.000MM x 0.957
= PHP124.410MM
(7) Report the cap as 3 written call

options on 6-month FRA, i.e., 6 against 12,
12 against 18 and 18 against 24.
(The rate for the first 6 months is already
set on the reporting date, i.e., the option
already expires.)
APP. 46b
05.12.31
Assume the delta ratios of the options are:

6 against 12
0.055
12 against 18
0.17
18 against 24
0.225
Assume the discounting factors are:
6 month
0.9674
12 month
0.9346
18 month
0.9009
24 month
0.8673
Assume spot exchange rate is PHP75.00
Report in Part I.2 GBP ladder:
For the first option
A long position in the 6 to 12 months
time band
= GBP2.000MM x 0.055 x 0.9346
= PHP7.710MM equivalent
A short position in the 3 to 6 months
time band
= GBP2.000MM x 0.055 x 0.9674
For the second option
A long position in the 1.0 to 1.9 years
time band
= GBP2.000MM x 0.17 x 0.9009
(For simplicity, gamma and vega

positions are not presented in this example.)
(8) Report a long 3 months zero coupon
security in Part I.2, EUR ladder, 1 to 3
months time band and a short 3 months zero
coupon security in the Peso ladder, 1 to 3
months time band.
Calculations similar to (4) above and
assume 3 months EUR cash rate at 3.25%
and spot exchange rate is PHP46.00.
EUR = EUR5.000MM/(1 + 0.0325 x 0.25)
PHP = PHP250.000MM/(1+ 0.0563 x 0.25)
= PHP246.530MM
(For simplicity, Part III of the report is not
presented in this example.)
(9) Report market value in Part II, item
1 (US column).
(10) Report as a long position the market
value for 25,000 shares (PHP4.875MM) in
Part II, Item 1 (Philippine column).
Report 25,000 shares covered by put option
in Part IV.1 (a), item 2
A short position in the 6 to 12 months

time band
= GBP2.000MM x 0.17 x 0.9346
Amount to be reported
= (25,000 x PHP195.00 x 16%)
{25,000 x (PHP214.50 PHP195.00)]
= PHP0.293MM
For the third option

A long position in the 1.9 to 2.8 years
time band
= GBP2.000MM x 0.225 x 0.8673
(11)Report as a short position the market

value for futures (HKD50.00 per index point)
in Part II, item 5 (HKD column) and as a
long position in Part I.2, HKD ladder, 1 to 3
months time band. Assume HKD to PHP
exchange rate is PHP6.50.
A short position in the 1.0 to 1.9 years

time band
= GBP2.000MM x 0.225 x 0.9009
(12)Report the USD leg as a long 6month zero coupon security in Part I.2, USD
ladder, 3 to 6 months time band. Report
APP. 46b
05.12.31
the PHP leg as a short 6-month zero coupon

security in Part I.2, PHP ladder, 3 to 6
months time band.
Assume the 6-month Peso and Dollar
zero coupon yields are 5.81% and 4%,
respectively, and the spot exchange rate is
PHP50.00.
Cash flows of currency swap: two legs
Pay PHP
PV of PHP leg
= PHP975.000MM x (1.11)
(1 + 0.0581 x 0.5)
= PHP1,051.700MM
Receive USD
109.5% of USD19.500MM in 6 months
PV of USD leg
= USD19.500MM x (1.095)
(1 + 0.04 x 0.5)
APP. 46c
05.12.31

(For Universal Banks and Commercial Banks with Expanded Derivatives Authority
But Without Options Transactions)
companies).
follows:
quarter.
3. Current market value should be used
for reporting. For leveraged instruments
where the apparent notional amount
differs from the effective notional amount,
the bank should use the effective notional
amount in calculating the market value
for reporting, e.g., a swap contract with
a stated notional amount of PHP1.0
million, the terms of which call for a
quarterly settlement of the difference
between 5% and PHIBOR multiplied by
10 has an effective notional amount of
PHP10.0 million.
4. Securities transactions are to be reported
on a trade date basis.

requirement are:
(a) the risks pertaining to interest raterelated instruments and equities in the banks
trading book; and
(b) foreign exchange risk throughout the
bank.
The Report should include the reporting
banks positions in on-balance sheet financial
instruments and off-balance sheet
derivatives, the latter being defined as
financial contracts whose values depend on
the values of one or more underlying assets
or indices.
6. For the purpose of the Report, the trading
book of a bank shall consist of:
variations;
execution of trade orders from customers and
market making; and
7. The financial instruments referred to in
the preceding paragraph include:
undertakings;
(c) financial futures contracts;
Appendix 46c - Page 1
APP. 46c
05.12.31
(d) forward contracts including forward

rate agreements; and
(e) swaps
book portfolio; and
banking books.
9. In general, the BSP will have regard to
the banks intention in entering into a
particular transaction when determining
whether such transaction should fall into the
trading book. Transactions will likely be
considered to carry a trading intent on the
part of the bank if:
process;
consistent basis.
10. Debt securities include both fixed-rate
and floating-rate instruments, negotiable

like debt securities. Debt related derivatives
include bond futures.
11. Interest rate derivatives include all
derivatives contracts and off-balance sheet
instruments which react to changes in
interest rates, e.g., interest rate futures,
forward rate agreements (FRAs), interest rate
and cross currency swaps, and forward
foreign exchange positions.
12. Detailed offsetting rules applicable to the
reporting of positions are set out in the
relevant parts of Specific Instructions. These
offsetting rules can be applied on both the
solo and consolidated basis, provided that
in the latter case there are no obstacles to
the quick repatriation of profits from a foreign
subsidiary to the Philippines and the bank
performs daily management of risks on a
consolidated basis. For this purpose,
offsetting means the exclusion of matched
positions of a bank from reporting and hence
exclusion of such positions from the
calculation of the adjusted capital adequacy
ratio.
capital adequacy ratio pursuant to
Subsections X116.1.a to X116.1.c of the
Manual of Regulations for Banks are
excluded from market risk capital
requirement.
14. In general, banks are only required to
complete Parts I to III and V of the Report.
Banks which have obtained the BSPs
approval to adopt their internal value-at-risk
(VaR) models to calculate their market risk
capital charge (in all or individual risk
categories) should complete Part IV (in lieu
of Parts I to III). Where the internal model is
used to calculate only selected risk
APP. 46c
05.12.31
categories, the capital charge for the risk

categories measured under the internal
models approach should be reported in
Part IV while that for the other risk
categories measured under the
standardized approach should be reported
in the relevant sections of Parts I to III. This
combination of the standardized approach
and the internal models approach is
allowed on a transitional basis. Banks
which adopt the internal models approach
will not be permitted, save in exceptional
circumstances, to revert to the standardized
approach.
1. Debt securities and debt related
derivatives specific risk
positions in debt securities and debt
derivatives (e.g., bond futures) in the trading
book by category of the issuer. Offsetting
will be allowed between long and short
positions in identical issues (including
positions in derivatives) with exactly the
same issuer, coupon, currency and
maturity. For items 1.4 to 1.7 of the Report,
positions should be slotted into the
appropriate time bands according to the
residual maturities of the debt securities (or
the underlying securities in case of debt
derivatives). (Refer to examples (1) and (2)
in Annex A).
repurchase agreement, will be treated as if
it were still owned by the seller of the
security, i.e., to be reported by the seller.
This principle applies also in Part 1.2 of
the Report. Commitments to buy and sell
securities should be reported as long and
short positions, respectively.

quasi banks with the highest credit
quality, as well as debt securities with the
highest credit quality refer to ratees/debt
securities given the minimum credit ratings
as indicated below by any two of the
following internationally accepted rating
agencies:
Rating Agency
(a) Moodys
(b) Standard and Poors
(c) Fitch IBCA
Credit Rating
Aa3 and above
AA- and above
AA- and above

Monetary Board.
The ratings of domestic rating agencies
may likewise be used for this purpose
provided that such rating agencies meet the
criteria to be prescribed by the Monetary
Board.
18. Multilateral development banks refer to
the World Bank Group comprised of the
International Bank for Reconstruction and
Development (IBRD) and the International
Finance Corporation (IFC), the Asian
Development Bank (ADB), the African
Bank (IADB), the European Investment
Bank (EIB); the Nordic Investment Bank
(NIB); the Caribbean Development Bank
(CDB), the Council of Europe Development
Bank (CEDB) and such others as may be
19. Non-central government public sector
entities of a foreign country refer to entities
which are regarded as such by a recognized
banking supervisory authority in the
country in which they are incorporated.
APP. 46c
05.12.31
2. Debt securities, debt related

derivatives and interest rate derivatives
general market risk
trading book positions in debt securities and
debt derivatives described above, as well as
interest rate derivatives. Report also interest
rate exposures arising from futures contracts
and forward positions in equities. A
Maturity Method is adopted for the reporting
of these positions as detailed below. Banks
that possess the necessary capability to
calculate the duration and price sensitivity
of each position separately and wish to
adopt such a duration approach for reporting
in this part may seek approval from BSP.
21. Positions should be reported separately
for each currency, i.e., banks should use
separate sheets (Part I.2 of the Report) to
report positions of different currencies. The
unadjusted market risk capital charge is then
calculated for each currency according to
procedures set out in paragraphs 31 to 34
with no offsetting between different
currencies.
22. Under the Maturity Method, positions
are slotted into the time bands of the maturity
ladder (as shown in Part I.2 of the Report)
by remaining maturity if fixed rate and by
the period to the next repricing date if
floating rate. (Refer to examples (1) and (2)
in Annex A). Derivatives should be treated
as combinations of long and short positions.
The maturity of an interest rate future or a
forward rate agreement will be the period
until delivery or exercise of the contract, plus
where applicable the life of the
underlying instrument. For example, a long
position in a June 3-month interest rate future
taken in December is to be reported at end
of December as a long position in a zero
coupon government security in that
particular currency with a maturity of 9
months and a short position in a zero
coupon government security with a maturity

of 6 months. (Refer to examples (5) and (6)
in Annex A). The market values of the two
positions should be reported. For forward
foreign exchange positions in the trading
book, they should be treated as long and as
short positions in a zero coupon government
security of the 2 currencies with the same
maturity as the forward contract. (Refer to
23. For a bond future, where a range of
deliverable instruments may be delivered to
fulfill the contract, the bank has flexibility
to elect which deliverable security goes into
the maturity ladder but should take account
of any conversion factor defined by the
exchange. A two-leg approach will be
adopted similar to the above. A long bond
future will be taken as a long position in a
deliverable bond and a short position in a
zero coupon security maturing at the futures
delivery date. For example, a long futures
contract on a 5 year fixed rate security with
delivery 3 months from the reporting date
will be reported as a long position in say,
a 5.25 year security, i.e., a specific security
which is within the range of deliverables
under the futures contract (as opposed to
a notional/theoretical security), and a
short position in a 3 months zero coupon
security. (Refer to example (3) in Annex
A).
The amount to be reported in the above
example for both legs will be the contract
face value divided by the relevant
current cash price of the selected
deliverable bond. A forward bond
transaction (i.e., with a settlement period
longer than the market norm) will be
treated similarly, i.e., a long bond forward
will be reported as long position in the
bond and a short position in a zero coupon
security up to the forward delivery date.
The current market value (at spot price) of
the bond should be reported.
APP. 46c
05.12.31
24. Swaps will be treated as two positions

in securities with the relevant maturities. For
example, an interest rate swap under which
a bank is receiving floating rate interest and
paying fixed will be treated as a long position
in a floating rate instrument of maturity
equivalent to the period until the next interest
fixing and a short position in a fixed-rate
instrument of maturity equivalent to the
residual life of the swap. The market values
of the 2 instruments should be reported.
(Refer to example (4) in Annex A). For swaps
that pay or receive a fixed or floating interest
rate against some other reference price, e.g.,
an equity price, the interest rate component
should be slotted into the appropriate
maturity category, with the equity
component being included in the equity
framework. The separate legs of crosscurrency swaps are to be reported in the
relevant maturity ladders for the currencies
concerned. (Refer to example (10) in Annex
A).
25. As with the reporting under Part I.1 of
the Report, banks can offset long and short
positions in identical instruments with
exactly the same issuer, coupon, currency
and maturity for general market risk
purposes. Similarly, a matched position in
a futures or forward contract and its
underlying may be fully offset. However,
the leg representing the time to expiry of the
futures or forward contract should be
reported.
For example, a bank has a long position
in a particular bond and sells forward (i.e.,
beyond the normal settlement period for the
security) such a bond as at the reporting
date. The long and short positions in the
bond can be offset but a long position in a
(notional) zero coupon security with
maturity at the forward delivery date should
be reported, at the current market value of
the bond. Similarly, if the bank has a short
position in a bond future and a long position
in the underlying bond, such positions can
be offset. A long position up to the futures

delivery date should, however, be reported.
When the futures contract comprises a
range of deliverable instruments, offsetting
of positions in the futures contract and its
underlying is only permissible in cases where
there is a readily identifiable underlying
security which is most profitable for the
trader with a short position to deliver, i.e.,
the cheapest to deliver. This means that
offsetting is only permitted between a short
future and a long bond, not between a long
future and a short bond; and the long bond
must be the one that is cheapest to deliver.
The amount to be reported for the remaining
long position up to the futures contracts
delivery date will be the face value of the
contract divided by the relevant conversion
factor and multiplied by the current spot
price of the cheapest to deliver bond.
26. Opposite positions in the same category
of derivatives instruments can in certain
circumstances be regarded as matched and
allowed to offset fully. The separate legs of
different swaps may also be matched
subject to the same conditions. To qualify
for this treatment, the positions must relate
to the same underlying instruments, be of
the same nominal value and be denominated
in the same currency. In addition:
(a) for futures: offsetting positions in the
notional or underlying instruments to which
the futures contract relates must be for
identical products and mature within 7 days
of each other;
(b) for swaps and forward rate
agreements (FRAs): the reference rate (for
floating rate positions) must be identical and
the coupon closely matched (i.e., within 15
basis points); and
(c) for swaps, FRAs and forwards: the
next interest fixing date or, for fixed coupon
positions or forwards, the residual maturity
must correspond within the following limits:
APP. 46c
05.12.31
residual maturity up to 1 month, the interest

fixing date or residual maturity must be the
same for both instruments;
residual maturity greater than 1 month and
up to 1 year, those dates or residual
maturities must be within 7 days of each
other; and
residual maturity over 1 year, those dates or
residual maturities must be within 30 days
of each other.
For example, a bought and a sold FRA
in the same currency with the same face
value and settlement date as well as notional
deposit maturity date can be offset against
each other and excluded from reporting if
the contract rates are within 15 basis points
of each other. Similarly, opposite swap
positions in the same currency with the
same face value and reference dates can be
offset if, say, the floating rate in both cases
is 6 months PHIBOR and the fixed rates are
within 15 basis points of each other. The
positions can still be offset if the reference
dates (i. e., the next interest fixing date or
remaining maturity) of the opposite positions
are different but within the range as set out
in (c) above. Opposite bond futures can,
for example, be offset against each other if
the deliverable bonds are of the same type
and mature within 7 days of each other.
27. Banks with the necessary expertise and
systems may use alternative formulae (the
so called pre-processing techniques) to
calculate the positions to be included in the
maturity ladder. This applies to all interest
rate sensitive positions, arising from both
physical and derivative instruments. One
method is to first convert the payments

required under each transaction into their
present values. For that purpose, each cash
flow should be discounted using zerocoupon yields. A single net figure of all of
the cash flows within each time band may
be reported. Banks wishing to adopt this or
other methods for reporting should seek the
BSPs prior approval. The pre-processing
models would be subject to review by the BSP.
position in debt securities or debt derivatives,
whether it is a short or long position, and
the other to the overall interest rate risk in
the trading book portfolio (termed general
market risk) where long and short positions
in different securities or derivatives can be
offset subject to certain disallowances.
Specific risk
29. The unadjusted specific risk charge is
graduated into five broad categories by types
of issuer, as follows:
Government
and
multilateral
development
banks*
0.00%
Qualifying** 0.25% (residual maturity of 6 months
or less)
1.00% (residual maturity of over 6
months to 24 months)
1.60% (residual maturity of over 24
months)
LGU bonds*** 4.00%
Others
8.00%
Government and multilateral development banks refers to the issuers as described under items 1.1 and 1.3 in Part
I.1 of the Report.
** Qualifying refers to the issuers/issues as described under items 1.4 to 1.7 in Part I.1 of the Report.
*** LGU bonds refers to bonds issued by local government units (LGUs), covered by Deed of Assignment of Internal
Revenue Allotment of the LGU and guaranteed by LGU Guarantee Corporation.
APP. 46c
05.12.31
30. Interest rate and currency swaps,

FRAs, forward foreign exchange contracts
and interest rate futures will not be
subject to a specific risk charge. In the
case of futures contracts where the
underlying is a debt security, a specific
risk charge will apply according to the
issuer (and the remaining maturity) as set
out in the above paragraph.
General market risk
31. General market risk applies to positions
in all debt securities, debt derivatives and
interest rate derivatives, subject only to an
exemption for fully or very closely matched
positions in identical instruments as
described in paragraphs 25 to 26 above.
The unadjusted capital charge is the sum of
the following components:
disallowance); and
32. In the maturity ladder, first calculate the
weighted positions by multiplying the
risk-factor according to the following table:
Table 1
Maturity method: time bands and weights
Coupon
3% or more
Coupon
less than 3%
Risk
Weight
1 month or less
Over 1 month to
3 months
Over 3 months to
6 months
Over 6 months to
12 months
Over 1 year to 2
years
1 month or less
Over 1 month to
3 months
Over 3 months to
6 months
Over 6 months to
12 months
Over 1.0 year to
1.9 years
0.00%
0.20%
0.40%
0.70%
1.25%
Over 2 years to 3
years
Over 3 years to 4
years
Over 4 years to 5
years
Over 5 years to 7
years
Over 7 years to 10
years
Over 10 years to
15 years
Over 15 years to
20 years
Over 20 years
Over 1.9 years to

2.8 years
Over 2.8 years to
3.6 years
Over 3.6 years to
4.3 years
Over 4.3 years to
5.7 years
Over 5.7 years to
7.3 years
Over 7.3 years to
9.3 years
Over 9.3 years to
10.6 years
Over 10.6 years to
12 years
Over 12 years to 20
years
Over 20 years
1.75%
2.25%
2.75%
3.25%
3.75%
4.50%
5.25%
6.00%
8.00%
12.50%
33. The weighted longs and shorts in each

time band will be offset resulting in a single
short or long position for each band. A 10%
capital charge (vertical disallowance) will
be levied on the smaller of the offsetting
positions, be it long or short. Thus, if the
sum of the weighted longs in a time band is
P100.0 million and the sum of the weighted
shorts is P90.0 million, the vertical
disallowance would be 10% of P90.0
million (i.e., P9.0 million).
34. Two rounds of horizontal offsetting
will then be conducted, first between the
net positions in each of 3 zones (zero to 1
year, over 1 year to 4 years and over 4
years), and subsequently between the net
positions in the 3 different zones. The
subject to the matched portion attracting
a disallowance factor that is part of the
capital charge. The residual net position
in each zone may be carried over and
offset against opposite positions in other
zones, subject to a second set of
disallowance factors.
APP. 46c
05.12.31
Table 2
stock indices. Long and short positions in

the same issue may be reported on a net
basis.
Horizontal disallowance
Zones
Time-band

the adjacent zones 1
zone zones and 3
1 month or less
Zone 1 Over 1 month to
3 months
Over 3 months to 40%
6 months
Over 6 months to
12 months
Over 1 year to 2
years
Zone 2 Over 2 years to 3 30%
years
Over 3 years to 4
years
Over 4 years to 5
years
Over 5 years to 7
years
Zone 3 Over 7 years to 10
years
Over 10 years 30%
to15 years
Over 15 years to
20 years
Over 20 years
40%
100%
40%
36. The positions are to be reported on a

market-by-market basis, i.e., under
separate columns to indicate the exchange
where the reported equities are listed/
traded. For foreign markets, banks should
indicate the country where the market is
located. (Refer to example (8) in Annex
A) Equities with listing in more than one
market should be reported as positions in
the market of their primary listing.
37. Equity derivatives are to be converted
into positions in the relevant underlying.
Futures and forward contracts relating to
an individual equity should be reported
at current market values. Futures relating
to equity indices can be reported either
as the current index value times the
monetary value of one index point set by
the exchange, i.e., the tick value, or the
marked-to-market value of the notional
underlying equity portfolio. (Refer to

positions in equities and equity
derivatives in the trading book, including
instruments that exhibit market behavior
similar to equities. The instruments
covered include common stock (whether
voting or non-voting), convertible bonds
(i.e., debt issues or preference shares that
are convertible, at a stated price, into
like equities and commitments to buy or
sell equity securities. For non-convertible
preference shares and those convertible
bonds which trade like debt securities, they
should be reported under Part I. Equity
derivatives include forwards, futures and
swaps on both individual equities and or

equity or index (same delivery months)
in each market may be fully offset,
resulting in a single net short or long
position. A future in a given equity may
be offset against an opposite cash
position in the same equity but the
interest rate exposure arising out of the
equity futures should be reported in Part
I. For example, a short futures contract
on a specific stock with delivery 3
months from the reporting date can be
offset against a long position in the
underlying stock. However, the interest
rate exposure arising out of the equity
futures should be reported as a long
position in the 1 to 3 months time band
of the stock denominated currency in Part
APP. 46c
05.12.31
I. The position should be reported as the

current market value of the stock.
39. An equity swap obligates a bank to
receive an amount based on the change in
value of a particular equity or equity
index and also to pay an amount based
on the change in value of a different
equity or equity index. Accordingly, the
receipt side and the payment side of an
equity swap contract should be reported
as a long and a short position,
respectively. For an equity swap contract
which involves a leg relating to a
financial instrument other than equities
or equity derivatives, for example,
receiving/paying a fixed or floating
interest rate, the exposure should be
slotted into the appropriate maturity
band in Part I. Where equities are part
of a forward contract (equities to be
received or to be delivered), any interest
rate exposure from the other leg of the
contract should be reported in Part I. The
treatment is similar to that set out in
paragraph 38. The same arrangement
applies for index futures. (Refer to
40. As with interest rate exposures, the
capital charge is levied to separately cover
both the specific risk and the general
market risk. Calculation is done on an
individual market basis. The unadjusted
capital charge for specific risk will be 8%
on the gross (i.e., long plus short) positions.
The unadjusted general market risk charge
will be 8% on the net position. Net long
and short positions in different markets
cannot be offset for the purpose of
calculating general market risk charge.
position in each currency. In addition,

structural positions taken deliberately to
hedge against the effects of exchange rate
movements on the capital adequacy of the
reporting bank may be excluded. This
should be cleared with the BSP prior to
reporting.
42. Net long/(short) position shall refer
to FX assets (excluding FX items allowed
under existing regulations to be
excluded from FX assets in the
computation of a banks net FX position
limits) less FX liabilities (excluding FX
items allowed under existing regulations
to be excluded from FX liabilities in the
computation of a banks net FX position
limits), plus contingent FX assets less
contingent FX liabilities.
position, discounted using current
interest rates, for measuring their
positions. Otherwise, forward currency
positions shall be measured based on
notional amount.
44. The total USD amount of net long or
net short position in each currency should
net short position.
45. The unadjusted capital charge will be
8% of the overall net open position.
Part IV Internal Models Approach

46. Only those banks which have

obtained the BSPs approval to adopt their
internal value-at-risk (VaR) models to
APP. 46c
05.12.31
calculate their market risk capital charges

in lieu of the standardized methodology
are required to report in this part.
1.4 column (d)) for the past 250 trading days

as set out in Table 3 below: and
1. Value-at-risk results
47. Report in this part the value-at-risk (VaR)
results as at the last trading day of the
average VaR over the most recent 60 trading
days of the reference quarter in column (b),
both for each individual market risk category
using internal models approach, i.e., item
1.1 to 1.3, and for the aggregate of these risk
categories, i.e., item 1.4.
48. Provided that the BSP is satisfied with
the banks system for measuring
exchange rates) may be allowed. The VaR
for the aggregate of all risk categories will
therefore not necessarily be equal to an
arithmetic sum of the VaR for the
individual risk category.
49. Report also in this part the number of
- actual daily changes in portfolio value,
in item 1.4. column (c), and
- hypothetical changes in portfolio value
that would occur were end-of-day
(d), for the aggregate of the broad risk
categories.
50. The multiplication factor to be reported
in item 1.4 column (e) is the summation of
the following 3 elements:
of 3;
(b) the plus factor ranging from 0 to 1
based on the number of backtesting exceptions
(i.e., the larger of item 1.4 column (c) or item
Table 3
backtesting exceptions for the past 250 trading
days
Zone
Green zone
Yellow zone
Red zone

0
1
2
3
4
5
6
7
8
9
10 or more
0.00
0.00
0.00
0.00
0.00
0.40
0.50
0.65
0.75
0.85
1.00
51. Capital charge for general market risk

calculated by internal models reported in
item 1.6 is larger of:
2. Specific risk
52. Capital charge for the specific risk of
debt securities and other debt related
derivatives, and equities and equity
derivatives is to be reported using either of
the following two methods:
IV.1; or
the specific risk into their models, report
the specific risk of debt securities and other
APP. 46c
05.12.31
debt related derivatives in Part I.1

according to the instructions in paragraphs
15-19 and 29-30. For equities and equity
derivatives, report the specific risk in Part
II according to the instructions in
paragraphs 35 to 40.
53. Report in this part in descending order
(i.e., the largest loss first) the 5 largest daily
losses over the reference quarter and their
respective VaRs for the risk exposures which
are measured by the internal models
Part V Adjusted Capital Adequacy Ratio
54. The market risk capital charges should
be aggregated and converted to a market
risk-weighted exposure. The total market
risk capital charges is the sum of the capital
charges for individual market risk categories
computed using either (a) the standardized
approach, or (b) the internal models
approach. The total capital charges for
individual market risk categories using the
standardized approach should be multiplied

by 125% (to be consistent with the higher
capital charge for credit risk, i.e., 10% as
opposed to the BIS recommended 8%.)
55. The total market risk-weighted exposures
is computed by multiplying the total market
risk capital charges by 10. (The multiplier
10 is the reciprocal of the BSP required
minimum capital ratio for credit risk of
10%.) The qualifying capital and total credit
risk weighted exposures are extracted from
Part V.A and Part V.B, respectively, of the
Report on the Computation of Risk-Based
Capital Adequacy Ratio covering credit risk.
56. For on-balance-sheet debt securities and
equities in the trading book included in Parts
I, II and IV of this Report, the credit riskweighted exposures reported in Part II of the
Report on the Computation of the Risk-Based
Capital Adequacy Ratio covering credit risk
should be excluded in calculating the
adjusted ratio covering combined credit risk
and market risk. The market risk capital
APP. 46c
05.12.31
Annex A
Suppose as at 31 December, 200X, ABC
Bank Corporation has the following trading
book positions:
maturity of 8 years.
Market value based on quoted price:
PHP518.914MM equivalent
(2) Long position in an unrated floating rate
note (6.25% current annual coupon) issued
by a US corporate with face value
repricing 9 months after.
(3) Long 10 futures contracts involving 5year US Treasury Note (face value
USD0.100MM per contract) for delivery 3
months after.
Selected deliverable: US Treasury Note
(coupon 6.375%) maturing 5.25 years, current
price at 100.0625, conversion factor 0.9423.
(4) Single currency interest rate swap with
face value PHP975.000MM and residual
maturity of 2.5 years, bank receives annual
floating rate interest and pays fixed at 8%
per annum. The current floating rate is fixed
at 5.5% with next repricing after 6 months.
(5) Long 10 futures contracts involving 3month LIBOR interest rate (face value
GBP6.500MM per contract) for delivery 6
months after.
(6) An FRA sold on 6-month PHIBOR with
nominal amount PHP130.000MM and
settlement date 9 months after.
(7) Forward foreign exchange position of
EUR5.000MM
(long)
against

months.
(9) Short one Hang Seng Index Futures for
delivery 3 months after, current index at
10,000.
(10) Currency swap with residual maturity
of 6 months.
Bank receives
USD19.500MM at 9.5% per annum and
pays PHP975.000MM at 11% per annum.
Treatments:
Part I.2, USD ladder, 7 to 10 years time
band.
of the long position in Part I.1, item 1.9
and Part I.2, USD ladder, 6 to 12 months
time band.
(3) Report selected Treasury Note (long
position) in Part I.1, item I.2 and Part I.2,
USD ladder, 5 to 7 year time band. Report
the same amount in short position, 1 to 3
months time band.
Assume spot exchange rate PHP50.00
USD0.100MM x 10 x 100.0625%/0.9423
= USD1.062MM
=P53.095MM
(4) Report the fixed rate leg as a short 2.5year bond in Part I.2, Peso ladder, 2 to 3
APP. 46c
05.12.31
years time band. Report the floating rate

leg as a long 6 months security in the 3 to
6 months time band.
Assume the Peso zero coupon yields are as
follows:
Period
1M
3M
6M
1Y
2Y
3Y
Zero Coupon (ZC)

5.31
5.63
5.81
6.16
6.69
7.07
(Zero coupon yields within 1 year can be

taken as cash rates, i.e., PHIBOR, zero
coupon yields beyond 1 year can be
constructed from, say, swap rates.)
Cash flows of Peso swap: 2 legs
Pay fixed rate bond
Receive floating rate paper
105.5% of PHP975.000MM in 6 months
Zero-coupon rates at 18 months can be
obtained from the linear interpolation
between the 1Y and 2Y zero coupon rates.
ZC(18 months) = (6.16% + 6.69%)/2 = 6.425%
Similarly,
ZC(30 months) = (6.69% + 7.07%)/2 = 6.88%
PV of the fixed leg (i.e., pay side)

0.08
0.08
= PhP975.000MM x -----------------------+ ----------------------(1+0.0581x0.5) (1+0.06425)1.5
1.08
+ --------------------(1+0.0688)2.5
= PHP1,038.479MM
PV of the floating leg (i.e. receive side)

= PhP975.000MM x
1.055
(1+0.0581 x 0.5)
= PHP999.587MM

security in Part I.2, GBP ladder, 6 to 12
months time band and a short 6 months
zero coupon security in 3 to 6 months time
band.
Assume the GBP 6 months zero-coupon
yield is 6.74% while the interpolated 9
months zero-coupon yield is 6.87%.
Assume spot exchange rate is PHP75.00.
9 months = GBP65.000MM/(1+0.0687 x 0.75)
= GBP65.000MM x 0.951
6 months = GBP65.000MM/(1+0.0674 x 0.5)
= GBP65.000MM x 0.9674

security in Part I.2, Peso ladder, 1.0 to
1.9 years time band and a short 9 months
zero coupon security in 6 to 12 months
time band.
Calculations similar to (4) above, ZC(15 months)
= 6.16%+(6.69% - 6.16%) x 0.25 = 6.2925%
15 months = PHP130.000MM/(1+0.062925)1.25
= PHP121.000MM
9 months = PHP130.000MM x 0.957
= PHP124.410MM

zero coupon security in the Peso ladder, 1
to 3 months time band.
APP. 46c
05.12.31
Calculations similar to (4) above and

assume 3 months EUR cash rate at 3.25%
and spot exchange rate is PHP46.00.
EUR = EUR5.000MM/(1 + 0.0325 x 0.25)
PhP = PHP250.000MM/(1+ 0.0563 x 0.25)
= PHP246.530MM

(8) Report market value in Part II, item 1
(US column).
(9) Report as a short position the market
value for futures (HKD50.00 per index
point) in Part II, item 5 (HKD column) and
as a long position in Part I.2, HKD ladder,1
to 3 months time band. Assume HKD to
PHP exchange rate is PHP6.50.
(10)Report the USD leg as a long 6-month
zero coupon security in Part I.2, USD
ladder, 3 to 6 months time band. Report
the PHP leg as a short 6-month zero
coupon security in Part I.2, PHP ladder, 3
Assume the 6-month Peso and Dollar zero

coupon yields are 5.81% and 4%,
respectively, and the spot exchange rate is
PHP50.00.
Cash flows of currency swap: two legs
Pay PHP
PV of PHP leg
PHP975.000MM x (1.11)
(1 + 0.0581 x 0.5)
= PHP1,051.700MM
Receive USD
109.5% of USD19.500MM in 6 months
PV of USD leg
USD19.500MM x (1.095)
(1 + 0.04 x 0.5)

APP. 46d
05.12.31

(For Universal Banks and Commercial Banks
Without Expanded Derivatives Authority)
companies).
follows:
quarter.
3. Current market value should be used for
reporting. For leveraged instruments where
the apparent notional amount differs from
the effective notional amount, the bank
should use the effective notional amount in
calculating the market value for reporting,
e.g., a swap contract with a stated notional
amount of PhP1.0 million, the terms of
which call for a quarterly settlement of the
difference between 5% and PHIBOR
multiplied by 10 has an effective notional
amount of PhP10.0 million.
4. Securities transactions are to be reported
on a trade date basis.

requirement are:
(a) the risks pertaining to interest raterelated instruments and equities in the
banks trading book; and
(b) foreign exchange risk throughout the
bank.
The Report should include the reporting
banks positions in on-balance sheet
financial instruments and off-balance sheet
derivatives, the latter being defined as
financial contracts whose values depend on
the values of one or more underlying assets
or indices.
6. For the purpose of the Report, the trading
book of a bank shall consist of:
variations;
execution of trade orders from customers
and market making; and
7. The financial instruments referred to in
the preceding paragraph include:
undertakings;
(c) currency forwards with tenor of one
(1) year or less; and
Appendix 46d - Page 1
APP. 46d
05.12.31
(d) currency swaps with tenor of one (1)

year or less and which for this purpose refer
to the simultaneous buying and selling of a
currency in approximately equal amounts for
different maturity dates with the same party.
book portfolio; and
banking books.
9. In general, the BSP will have regard to the
banks intention in entering into a particular
transaction when determining whether such
transaction should fall into the trading book.
Transactions will likely be considered to carry
a trading intent on the part of the bank if:
process;
consistent basis.
10. Debt securities include both fixed-rate
and floating-rate instruments, negotiable

like debt securities.
11. Detailed offsetting rules applicable to the
reporting of positions are set out in the
relevant parts of Specific Instructions. These
offsetting rules can be applied on both the
solo and consolidated basis, provided that
in the latter case there are no obstacles to the
quick repatriation of profits from a foreign
subsidiary to the Philippines and the bank
performs daily management of risks on a
consolidated basis. For this purpose, offsetting
means the exclusion of matched positions of
a bank from reporting and hence exclusion of
such positions from the calculation of the
adjusted capital adequacy ratio.
capital adequacy ratio pursuant to Subsections
X116.1.a to X116.1.c of the Manual of
Regulations for Banks are excluded from
market risk capital requirement.
13. In general, banks are only required to
complete Parts I to III and V of the Report.
Banks which have obtained the BSPs
approval to adopt their internal value-at-risk
(VaR) models to calculate their market risk
capital charge (in all or individual risk
categories) should complete Part IV (in lieu
of Parts I to III). Where the internal model is
used to calculate only selected risk
categories, the capital charge for the risk
categories measured under the internal
models approach should be reported in Part
IV while that for the other risk categories
measured under the standardized approach
should be reported in the relevant sections
of Parts I to III. This combination of the
standardized approach and the internal
models approach is allowed on a transitional
basis. Banks which adopt the internal
APP. 46d
05.12.31
models approach will not be permitted, save

in exceptional circumstances, to revert to
the standardized approach.
1. Debt securities specific risk
positions in debt securities in the trading book
by category of the issuer. Offsetting will be
allowed between long and short positions in
identical issues with exactly the same issuer,
coupon, currency and maturity. For items 1.4
to 1.7 of the Report, positions should be slotted
into the appropriate time bands according to
the residual maturities of the debt securities.
(Refer to examples (1) and (2) in Annex A).
repurchase agreement, will be treated as if it
were still owned by the seller of the security,
i.e., to be reported by the seller. This principle
applies also in Part 1.2 of the Report.
quasi banks with the highest credit quality,
as well as debt securities with the highest
credit quality refer to ratees/debt securities
given the minimum credit ratings as
indicated below by any two of the following
internationally accepted rating agencies:
Rating Agency
(a) Moodys
(b) Standard and Poor's
(b) Fitch IBCA
Credit Rating
Aa3 and above
AA- and above
AA- and above

Monetary Board.
The ratings of domestic rating agencies may
likewise be used for this purpose provided
that such rating agencies meet the criteria to

be prescribed by the Monetary Board.
17. Multilateral development banks refer to
the World Bank Group comprised of the
International Bank for Reconstruction and
Development (IBRD) and the International
Finance Corporation (IFC), the Asian
Development Bank (ADB), the African
Bank (IADB), the European Investment Bank
(EIB); the Nordic Investment Bank (NIB); the
Caribbean Development Bank (CDB), the
Council of Europe Development Bank
(CEDB) and such others as may be
18. Non-central government public sector
entities of a foreign country refer to entities
which are regarded as such by a recognized
banking supervisory authority in the country
in which they are incorporated.
2. Debt securities general market risk
trading book positions in debt securities and
forward foreign exchange positions. A
Maturity Method is adopted for the reporting
of these positions as detailed below. Banks
that possess the necessary capability to
calculate the duration and price sensitivity
of each position separately and wish to
adopt such a duration approach for reporting
in this part may seek approval from BSP.
20. Positions should be reported separately
for each currency, i.e., banks should use
separate sheets (Part I.2 of the Report) to
report positions of different currencies. The
unadjusted market risk capital charge is then
calculated for each currency according to
procedures set out in paragraphs 28 to 31
with no offsetting between different
currencies.
APP. 46d
05.12.31
21. Under the Maturity Method, positions are

slotted into the time bands of the maturity
ladder (as shown in Part I.2 of the Report) by
remaining maturity if fixed rate and by the
period to the next repricing date if floating rate.
(Refer to examples (1) and (2) in Annex A).
For forward foreign exchange positions in the
trading book, they should be treated as long
and as short positions in a zero coupon
government security of the 2 currencies with
the same maturity as the forward contract.
(Refer to example (3) in Annex A).
22. As with the reporting under Part I.1 of
the Report, banks can offset long and short
positions in identical instruments with exactly
the same issuer, coupon, currency and maturity
for general market risk purposes.
23. Opposite forward foreign exchange
positions can in certain circumstances be
regarded as matched and allowed to offset
fully. The separate legs of different currency
swaps may also be matched subject to the
same conditions. To qualify for this treatment,
the positions must relate to the same underlying
currency and be of the same nominal value.
In addition, the residual maturity must
correspond within the following limits:
if either of the instruments for offsetting
has a residual maturity up to 1 month, the
residual maturity must be the same for both
instruments; and
if either of the instruments for offsetting
has a residual maturity greater than 1 month
and up to 1 year, those residual maturities
must be within 7 days of each other.
24. Banks with the necessary expertise and
systems may use alternative formulae (the
so called pre-processing techniques) to
calculate the positions to be included in the
maturity ladder. This applies to all interest
rate sensitive positions, arising from physical
instruments and currency forwards and

swaps. One method is to first convert the
payments required under each transaction
into their present values. For that purpose,
each cash flow should be discounted using
zero-coupon yields. A single net figure of all
of the cash flows within each time band may
be reported. Banks wishing to adopt this or
other methods for reporting should seek the
BSPs prior approval. The pre-processing
models would be subject to review by the BSP.
position in debt securities, whether it is a short
or long position, and the other to the overall
interest rate risk in the trading book portfolio
(termed general market risk) where long and
short positions in different securities and
currency forwards and swaps can be offset
subject to certain disallowances.
Specific risk
26. The unadjusted specific risk charge is
graduated into five broad categories by types
of issuer, as follows:
Government and
multilateral
development 0.00%
0.25% (residual maturity of 6
banks*
months or less)
Qualifying**
1.00% (residual maturity of over
6 months to 24 months)
1.60% (residual maturity of over
24 months)
4.00%
LGU bonds*** 8.00%
Others
Government and multilateral development banks refers to the issuers as described under items 1.1 and 1.3 in Part I.1
of the Report.
** Qualifying refers to the issuers/issues as described under items 1.4 to 1.7 in Part I.1 of the Report.
*** LGU bonds refers to bonds issued by local government units (LGUs), covered by Deed of Assignment of Internal
Revenue Allotment of the LGU and guaranteed by LGU Guarantee Corporation.
APP. 46d
05.12.31
27. Currency swaps and forward foreign

exchange contracts will not be subject to
a specific risk charge.
General market risk
28. General market risk applies to
positions in all debt securities and
currency forwards and swaps subject only
to an exemption for fully or very closely
matched positions in identical
instruments as described in paragraphs 22
to 23 above. The unadjusted capital
charge is the sum of the following
components:
disallowance); and
29. In the maturity ladder, first calculate
the weighted positions by multiplying the
risk-factor according to the following
table:
Table 1
Maturity method: time bands and weights
Coupon
3% or more
Coupon
less than 3%
Risk
weight
1 month or less
Over 1 month to
3 months
Over 3 months to
6 months
Over 6 months to
12 months
1 month or less
Over 1 month to
3 months
Over 3 months to
6 months
Over 6 months to
12 months
0.00%
0.20%
Over 1 year to 2
years
Over 2 years to 3
years
Over 1.0 year to

1.9 years
Over 1.9 years to
2.8 years
1.25%
0.40%
0.70%
1.75%
Over 3 years to
4 years
Over 2.8 years to

3.6 years
2.25%
Over 4 years to
5 years
Over 5 years to
7 years
Over 7 years to
10 years
Over 10 years
to 15 years
Over 15 years
to 20 years
Over 3.6 years to

4.3 years
Over 4.3 years to
5.7 years
Over 5.7 years to
7.3 years
Over 7.3 years to
9.3 years
Over 9.3 years to
10.6 years
Over 10.6 years to
12 years
Over 12 years to
20 years
Over 20 years
2.75%
3.25%
3.75%
4.50%
5.25%
6.00%
8.00%
12.50%
30. The weighted longs and shorts in each

time band will be offset resulting in a single
short or long position for each band. A 10%
capital charge (vertical disallowance) will
be levied on the smaller of the offsetting
positions, be it long or short. Thus, if the
sum of the weighted longs in a time band is
P100.0 million and the sum of the weighted
shorts is PhP90.0 million, the vertical
disallowance would be 10% of PhP90.0
million (i.e., PhP9.0 million).
31. Two rounds of horizontal offsetting
will then be conducted, first between the
net positions in each of 3 zones (zero to 1
year, over 1 year to 4 years and over 4
years), and subsequently between the net
positions in the 3 different zones. The
subject to the matched portion attracting
a disallowance factor that is part of the
capital charge. The residual net position
in each zone may be carried over and
offset against opposite positions in other
zones, subject to a second set of
disallowance factors.
APP. 46d
05.12.31
Table 2
Horizontal disallowances
Zones
Time-band
1 month or
less
Over 1
Zone 1 month to 3
months
Over 3
months to 6
months
Over 6
months to 12
months
Over 1 year
Zone 2 to 2 years
Over 2 years
to 3 years
Over 3 years
to 4 years
Over 4 years
to 5 years
Over 5 years
to 7 years
Over 7 years
to 10 years
Zone 3 Over 10
years to 15
years
Over 15
years to 20
years
Over 20
years

the adjacent zones 1
and 3
zone zones
40%
40%
30%
100%
40%
30%

positions in equities in the trading book,
including instruments that exhibit market
behavior similar to equities. The
instruments covered include common
stock (whether voting or non-voting), and
convertible bonds (i.e., debt issues or
preference shares that are convertible, at
a stated price, into common shares of the
issuer) which trade like equities. For nonconvertible preference shares and those
convertible bonds which trade like debt
securities, they should be reported under

Part I. Long and short positions in the
same issue may be reported on a net
basis.
33. The positions are to be reported on a
market-by-market basis, i.e., under
separate columns to indicate the
exchange where the reported equities are
listed/traded. For foreign markets, banks
should indicate the country where the
market is located. (Refer to example (4)
in Annex A) Equities with listing in more
than one market should be reported as
positions in the market of their primary
listing.
equity in each market may be fully offset,
resulting in a single net short or long
position.
35. As with interest rate exposures, the
capital charge is levied to separately
cover both the specific risk and the
general market risk. Calculation is done
on an individual market basis. The
unadjusted capital charge for specific risk
will be 8% on the gross (i.e., long plus
short) positions. The unadjusted general
market risk charge will be 8% on the net
position. Net long and short positions
in different markets cannot be offset for
the purpose of calculating general market
risk charge.
position in each currency. In addition,
structural positions taken deliberately to
hedge against the effects of exchange rate
movements on the capital adequacy of the
reporting bank may be excluded. This should
be cleared with the BSP prior to reporting.
APP. 46d
05.12.31
37. Net long/(short) position shall refer to

FX assets (excluding FX items allowed
from FX assets in the computation of a
banks net FX position limits) less FX
liabilities (excluding FX items allowed
from FX liabilities in the computation of a
banks net FX position limits), plus
contingent FX assets less contingent FX
liabilities.
position, discounted using current interest
rates, for measuring their positions.
Otherwise, forward currency positions
shall be measured based on notional
amount.
39. The total USD amount of net long or
net short position in each currency should
net short position.
40. The unadjusted capital charge will be
8% of the overall net open position.
Part IV Internal Models Approach
41. Only those banks which have obtained
the BSPs approval to adopt their internal
value-at-risk (VaR) models to calculate their
market risk capital charges in lieu of the
standardized methodology are required to
report in this part.
1. Value-at-risk results
42. Report in this part the value-at-risk (VaR)
results as at the last trading day of the

average VaR over the most recent 60
trading days of the reference quarter in
column (b), both for each individual
market risk category using internal models
approach, i.e., items 1.1 to 1.3, and for
the aggregate of these risk categories, i.e.,
item 1.4.
43. Provided that the BSP is satisfied with
the banks system for measuring
exchange rates) may be allowed. The VaR
for the aggregate of all risk categories will
therefore not necessarily be equal to an
arithmetic sum of the VaR for the
individual risk category.
44. Report also in this part the number of
- actual daily changes in portfolio value,
in item 1.4. column (c), and
- hypothetical changes in portfolio value
that would occur were end-of-day
(d), for the aggregate of the broad risk
categories.
45. The multiplication factor to be reported
in item 1.4 column (e) is the summation of
the following 3 elements:
of 3;
(b) the plus factor ranging from 0 to 1
based on the number of backtesting
exceptions (i.e., the larger of item 1.4 column
(c) or item 1.4 column (d)) for the past 250
trading days as set out in Table 3 below:
and
APP. 46d
05.12.31
Table 3
backtesting exceptions for the past 250 trading
days
Zone
Green zone
0
1
2
3
4
Yellow zone
5
6
7
8
9
Red zone
10 or more
0.00
0.00
0.00
0.00
0.00
0.40
0.50
0.65
0.75
0.85
1.00
46. Capital charge for general market risk

calculated by internal models reported in
item 1.6 is larger of:
2. Specific risk
47. Capital charge for the specific risk of
debt securities and equities is to be
reported using either of the following two
methods:
IV.1; or
the specific risk into their models, report the
specific risk of debt securities in Part I.1
according to the instructions in paragraphs
14-18 and 26-27. For equities, report the
specific risk in Part II according to the

instructions in paragraphs 32 to 35.
48. Report in this part in descending order
(i.e., the largest loss first) the 5 largest daily
losses over the reference quarter and their
respective VaRs for the risk exposures which
are measured by the internal models
Part V Adjusted Capital Adequacy Ratio
49. The market risk capital charges should
be aggregated and converted to a market
risk-weighted exposure. The total market
risk capital charge is the sum of the capital
charges for individual market risk
categories computed using either (a) the
standardized approach, or (b) the internal
models approach. The total capital
charges for individual market risk
categories using the standardized
approach should be multiplied by 125%
(to be consistent with the higher capital
charge for credit risk, i.e., 10% as opposed
to the BIS recommended 8%.)
50. The total market risk-weighted
exposures is computed by multiplying the
total market risk capital charges by 10.
(The multiplier 10 is the reciprocal of the
BSP required minimum capital ratio for
credit risk of 10%.) The qualifying capital
and total credit risk weighted exposures
are extracted from Part V.A and Part V.B,
respectively, of the Report on the
Computation of Risk-Based Capital
Adequacy Ratio covering credit risk.
51. For on-balance-sheet debt securities
and equities in the trading book included
in Parts I, II and IV of this Report, the credit
APP. 46d
05.12.31
risk-weighted exposures reported in Part II

of the Report on the Computation of the
Risk-Based Capital Adequacy Ratio covering
credit risk should be excluded in calculating
the adjusted ratio covering combined credit
risk and market risk. The market risk capital

APP. 46d
05.12.31
Annex A
Suppose as at 31 December, 200X, ABC
Bank Corporation has the following
trading book positions:
maturity of 8 years.
(2) Long position in an unrated floating rate
note (6.25% current annual coupon) issued
by a US corporate with face value
repricing 9 months after.
Part I.2, USD ladder, 7 to 10 years time band.

of the long position in Part I.1, item 1.9 and
Part I.2, USD ladder, 6 to 12 months time
band.
zero coupon security in the Peso ladder, 1
Assume 3 months EUR cash rate at 3.25%,
3-month Peso zero-coupon yield at 5.63%
and spot exchange rate is 46.
PV of the EUR leg (i.e. receive side)
(3) Forward foreign exchange position of

EUR5.000MM
(long)
against
months.
EUR = EUR5.000MM/(1 + 0.0325 x 0.25)

= P228.146MM equivalent

PHP = P250.000MM/(1+ 0.0563 x 0.25)

= P246.530MM
PV of the PHP leg (i.e. pay side)
Treatments:
(For simplicity Part III of the report is not


(4) Report market value in Part II, item 1

(US column).
APP. 46e
05.12.31
PROCEDURES TO BE OBSERVED BY UNIVERSAL AND

COMMERCIAL BANKS APPLYING FOR BSP RECOGNITION OF
THEIR OWN INTERNAL MODELS FOR CALCULATING
MARKET RISK CAPITAL
A. Banks own self-assessment
A bank intending to use its own internal
Value-at-Risk (VaR) models, in lieu of the
standardized approach, for calculating
market risk capital charge should conduct
a self-assessment of its compliance with the
requirements for the use of such models as
prescribed in Appendix 46, using the
attached questionnaire in Annex A.
B. Offsite assessment by BSP
If a bank believes that it is in compliance
with the abovementioned requirements for
the use of internal models, it should submit
a written application to the appropriate
supervision and examination department of
the BSP, together with the following:
1. Accomplished questionnaire;
2. A listing of the products to be included
in the risk models;
3. Details as of end of the preceding
quarter, by each product listed above, of:
a. The size of positions in terms of
market value; and
b. The currencies in which it is traded,
4. Organizational structure and personnel;
The bank should submit latest
organizational chart showing the names,
reporting lines, and responsibilities of key
personnel in-charge of trading, and of
functions supporting the trading operations
such as risk control, back office, internal audit,
etc., and those at board level to whom they
report. For those responsible for trading, the
bank should provide details of their relevant
qualifications and experience in the area of
trading. For those responsible for risk control,
the bank should provide details of their
relevant qualifications and experience,
particularly on the use of banks models.
1
The bank should also provide

information on the number of staff within
the risk control unit1 , their internal reporting
structure, responsibilities, qualifications and
experience.
5. Full technical description of the model,
indicating, among others, the following:
a. the type of VaR model used (e.g.,
variance-covariance matrix, historical
simulation or Monte Carlo simulation);
b. the parameters which are integral to
the VaR calculations, including assumptions
regarding:
(1) confidence interval;
(2) holding period;
(3) length of historical data used to
calculate volatility parameters;
(4) scaling factors applied to VaR
numbers to convert shorter holding periods
to longer holding periods;
(5) weighting scheme applied to
historical data (e.g., giving recent
observations more weight than less recent
observations);
(6) probability distribution functions of
input variables to the Monte Carlo
simulation model;
(7) the frequency of input data
updates (e.g., how often are historical data
series updated, when are variancecovariance matrices revised, etc.);
(8) the other models which are used as
inputs to the VaR model (e.g., option pricing
models, interest rate sensitivity models, etc.)
and how they interface with the model; and
(9) the frequency of VaR calculation;
c. an outline of the VaR risk
measurement calculation and processes,
including, where necessary, mathematical
formulae. This should also include:
Referring generally to the risk management group functions in the BAP Financial Markets Risk Reference Manual.
Appendix 46e - Page 1
APP. 46e
05.12.31
(1) the manner in which non-linear

products, like options, are incorporated in the
model;
(2) the extent to which correlation is
allowed both within and across risk categories
(i.e., interest rates, equity prices, exchange
rates); and
(3) the means by which specific risk is
addressed within the VaR framework, if
appropriate, and the explanation of the
techniques by which this is achieved.
6. Policies and procedures for backtesting;
The bank should describe the methods
of backtesting employed, including the
treatment of intra-day trading profits and loss
and fee income within the daily profit and
loss figures. While the formal implementation
of the BSP prescribed backtesting program
should begin on the quarter following the date
of BSPs recognition of the banks internal
model and thus implies that the formal
accounting of exceptions under the BSP
prescribed backtesting program would be a
year later, the bank should, at initial
assessment, submit at least the latest
backtesting result based on its own
backtesting program, including the
confidence level used in calculating the VaR
numbers. The confidence level used shall
dictate the number of daily observations on
which the backtesting will be applied (e.g.,
250 number of observations for a ninety-nine
percent (99%) confidence level, and a higher
number of observations for a confidence level
higher than ninety-nine percent (99%),
subject to a minimum of 250 observations.
7. Policies and procedures for stress testing;
8. Internal validation reports which should
a. the latest review of the overall risk
management process by the applicant banks
internal auditors; and
b. the latest validation of the formulae
used in the calculation process, as well as
for the pricing of options and other complex instruments by a qualified unit which
is independent from the trading area; and
9. Validation reports of external auditor.

The bank should stand ready to make a
presentation to the BSP on its compliance with
the abovementioned requirements for the use
of internal models.
C. On-site assessment by BSP
The BSP shall conduct an on-site
assessment of the models to review both the
technical details of the models and the risk
management practices that govern their use.
During the on-site assessment, the bank
should give a brief demonstration of how
its models work. The demonstration should
cover the following:
1. how model inputs are fed into the
system including extent of manual inputs;
2. how VaR numbers are calculated;
3. how results are generated and interpreted;
4. accuracy in terms of back testing results;
5. stress testing capability;
6. use of model outputs in risk
management; and
7. limitations of the model.
The onsite assessment shall also include
interview with the concerned officers and
personnel of the bank.
D. Assessment on an ongoing basis by the
BSP. After initial recognition of the models
by the BSP, the bank should inform the BSP
of any material change to the models,
including change in the methodology or
scope to cover new products and
instruments. The BSP shall determine
whether the models remain acceptable for
calculating the market risk capital charge.
The BSP shall likewise conduct a
periodic assessment of the models and the
controls surrounding the models at least
annually to ensure that they remain
compliant with the minimum qualitative
and quantitative requirements prescribed
under Appendix 46 on an ongoing basis.
Non-compliance with the minimum
requirements shall be ground for
disallowing the use of such models.
APP. 46e
05.12.31
Annex A
(Name of Bank)
COMPLIANCE WITH THE REQUIREMENTS FOR THE USE OF INTERNAL MODELS
Criteria
Yes
No
Bank's
Explanations1
I. General Criteria
1. Is the banks risk management system
conceptually sound and implemented with
integrity?
2. Does the bank have sufficient number of staff
skilled in the use of sophisticated models not
only in the trading area but also in the risk
control, audit, and if necessary, back office
area?
3. Do the banks models have a proven track
record of reasonable accuracy in measuring
risk?
4. Does the bank conduct stress tests along the
lines discussed in Item V below?
II. Qualitative Standards
1. Does the bank have an independent risk
control unit that is responsible for the design
and implementation of the banks risk
management system?
Does the unit produce and analyze daily

reports on the output of the banks risk
measurement model, including an evaluation
of the relationship between measures of risk
exposure and trading limits?
Is the unit independent from business trading

units?
(Cite examples of
reports produced by
the unit and indicate
what time of day
these reports are
calculated.)
The questions in this checklist may already be addressed by other materials submitted by the Bank. In such cases, please
indicate in this column the appropriate reference document.
APP. 46e
05.12.31
Criteria
Yes
No
Bank's
Explanations1
Does the unit report directly to senior

management of the bank?
2. Does the risk control unit conduct a regular

backtesting program, i.e., an expost
comparison of the risk measure generated by
the model against actual daily changes in
portfolio value over longer periods of time, as
well as hypothetical changes based on static
positions?
3. Are the board of directors (or equivalent
Philippine branches of foreign banks) and
senior management actively involved in the
risk control process?
Do the board of directors (or equivalent

Philippine branches of foreign banks) and
senior management regard risk control as an
essential aspect of the business to which
significant resources need to be devoted?
Are daily reports prepared by the independent

risk control unit reviewed by a level of
management with sufficient seniority and
authority to enforce both reductions of
positions taken by individual traders and
reductions in the banks overall risk exposure?
4. Is the banks internal risk measurement model

closely integrated into the day-to-day risk
management process of the bank?
Is the output of the internal risk measurement

model accordingly an integral part of the
process of planning, monitoring and
controlling the banks market risk profile?
APP. 46e
05.12.31
Criteria
Yes
No
Bank's
Explanations1
5. Is the risk measurement system used in

conjunction with internal trading and
exposure limits?
Are trading limits related to the banks risk

measurement model in a manner that is
consistent over time and that is wellunderstood by both traders and senior
management?
6. Is a routine and rigorous program of stress

testing in place as a supplement to the risk
analysis based on day-to-day output of the
banks risk measurement model?
Are the results of stress testing exercises

reviewed periodically by senior management
and reflected in the policies and limits set by
management and the board of directors (or
equivalent management committee in the case
of Philippine branches of foreign banks)?
Where stress tests reveal particular

vulnerability to a given set of circumstances,
are prompt steps taken to manage those risks
appropriately (e.g., by hedging against that
outcome or reducing the size of the banks
exposures)?
7. Does the bank have a routine in place for

ensuring compliance with a documented set
of internal policies, controls and procedures
concerning the operation of the risk
measurement system?
Is the banks risk measurement system well

documented, i.e. through a risk management
manual that describes the basic principles of
the risk management system and that provides
an explanation of the empirical techniques
used to measure market risk?
APP. 46e
05.12.31
Criteria
Yes
No
Bank's
Explanations1
8. Is an independent review of the risk

measurement system carried out regularly in
the banks own internal auditing process?
Does this review include both the activities of

the business trading units and of the
independent risk control unit?
Does the review of the overall risk management

process take place at regular intervals (ideally
not less than once a year)?
Does the review address the following:
the adequacy of the documentation of the risk

management system and process?
the organization of the risk control unit?
the integration of market risk measures into

daily risk management?
the approval process for risk pricing models

and valuation systems used by front and backoffice personnel?
the validation of any significant change in the

risk measurement process?
the scope of market risks captured by the risk

measurement model?
the integrity of the management information

system?
the accuracy and completeness of position

data?
the verification of the consistency, timeliness

and reliability of data sources used to run
internal models, including the independence
of such data sources?
APP. 46e
05.12.31
Criteria
the accuracy and appropriateness of

volatility and correlation assumptions?
the accuracy of valuation and risk

transformation calculations?
the verification of the models accuracy

through frequent backtesting as discussed In
Item II.2 above?
Yes
No
Bank's
Explanations1
III. Specification of Market Risk Factors

A.
Interest Rates
Is there a set of risk factors corresponding to
interest rates in each currency in which the bank
has interest rate-sensitive on- or off- balance sheet
positions?
Does the risk measurement system model the

yield curve using one (1) of a number of
generally accepted approaches, e.g., by
estimating forward rates of zero coupon
yields?
Is the yield curve divided into various maturity

segments in order to capture variation in the
volatility of rates along the yield curve, with
one (1) risk factor corresponding to each
maturity segment?
For material exposures to interest rate

movements in the major currencies and
markets, does the bank model the yield curve
using a minimum of six (6) risk factors?
Does the risk measurement system

incorporate separate risk factors to capture
spread risk (e.g., between bonds and swaps)?
APP. 46e
05.12.31
Criteria
Yes
No
Bank's
Explanations1
B. Equity Prices
1. Are there risk factors corresponding to each
of the equity markets in which the bank holds
significant positions?
Is there, at a minimum, a risk factor that is

designed to capture market-wide movements
in equity prices (e.g., a market index)?
2. Does the sophistication and nature of the

modeling technique for a given market
correspond to the banks exposure to the
overall market as well as its concentration in
individual equity issues in that market?
C. Exchange Rates
Does the risk measurement system incorporate risk
factors corresponding to the individual foreign
currencies in which the banks positions are
denominated, i.e., are there risk factors
corresponding to the exchange rate between the
Philippine peso and each foreign currency in
which the bank has a significant exposure?
IV. Quantitative Standards
1. Is Value-at-risk (VaR) computed on a daily
basis?
2. Is a 99th percentile, one-tailed confidence
interval used?
3. Is an instantaneous price shock equivalent to
a ten (10) day movement in prices used, i.e.,
is the minimum holding period ten (10)
trading days?
If VaR numbers are calculated according to a

shorter holding period, is this scaled up to ten
(10) days by the square root of time?
APP. 46e
05.12.31
Criteria
Yes
No
Bank's
Explanations1
4. Is the historical observation period (sample

period) at least one (1) year?
If a weighting scheme or other methods for

the historical observation period are used, is
the effective observation period at least one
(1) year (that is, the weighted average time lag
of the individual observations is not less than
six (6) months)?
5. Are data sets updated no less frequently than

once every three (3) months?
Are data sets reassessed whenever market

prices are subject to material changes?
6. For banks with option transactions
Does the banks model capture the non-linear

price characteristics of options positions?
Is a ten (10)-day price shock applied to options

positions or positions that display option-like
characteristics?
Does the banks risk measurement system have

a set of risk factors that captures the volatilities
of the rates and prices underlying option
positions, i.e., vega risk?
For banks with relatively large and/or complex

options portfolios, does the bank have detailed
specifications of the relevant options
volatilities, i.e., does the bank measure the
volatilities of options positions broken down
by different maturities?
V. Stress Testing
1. Does the bank have a rigorous and
comprehensive stress-testing program in place?
The questions in this checklist may already be addressed by other materials submitted by the Bank. In such cases,
please indicate in this column the appropriate reference document.
APP. 46e
05.12.31
Criteria
Yes
No
Bank's
Explanations1
2. Do the banks stress scenarios cover a range of

factors that can create extraordinary losses or
gains in trading portfolios, or to make the
control of risks in those portfolios very difficult,
e.g., low-probability events in all major types
of risks, including the various components of
market, credit, and operational risks?
Do the stress scenarios shed light on the impact

of such events on positions that display both
linear and non-linear price characteristics (i.e.
options and instruments that have options-like
characteristics)?
3. Are the banks stress tests both of a qualitative

and quantitative nature, incorporating both
market risk and liquidity aspect of market
disturbances?
Do quantitative criteria identify plausible stress

scenarios to which banks could be exposed?
4. Are the results of stress testing reviewed

periodically by senior management?
Are the results of stress testing reflected in the

policies and limits set out by management and
the board of directors (or equivalent
Philippine branches of foreign banks)?
If the banks testing reveals particular

vulnerability to a given set of circumstances,
does the bank take prompt steps to manage
those risks appropriately (e.g., by hedging
against the outcome or reducing the size of its
exposures)?
APP. 46e
05.12.31
Criteria
Yes
No
Bank's
Explanations1
VI. External Validation

Is the model accuracy validated by external
auditor?
If yes, does the validation include -
Verification of the internal auditors

report on their review of the banks
overall risk management process?
Ensuring that the formula used in the

calculation process, as well as for
pricing of options and other complex
instruments, are validated by a
qualified unit, which is independent
from the trading area?
Checking the adequacy of the

structure of the internal models with
respect to the banks activities?
Checking the results of the

backtesting to ensure that the internal
model provides a reliable measure of
potential loss over time?
Ensuring the transparency and

accessibility of the data flows and
processes associated with the risk
measurement system?
APP. 47
05.12.31
GUIDELINES FOR THE ESTABLISHMENT AND ADMINISTRATION/

MANAGEMENT OF SINKING FUND FOR THE REDEMPTION OF
REDEEMABLE PRIVATE PREFERRED SHARES
Sinking fund shall refer to a fund set
aside in order to accumulate the amount
necessary for the redemption of redeemable
preferred shares.
A. Establishment and Composition
1. Documentation
a. A resolution by the banks board of
directors authorizing the Chief Executive
Officer/President of the bank to establish a
sinking fund equal to the reserve for
retirement of preferred shares for the sole
purpose of redemption of redeemable
preferred shares at their maturity dates.
b. Investment Plan. The plan shall be
approved by the board of directors and
should indicate the types/classes of
investments for the sinking fund. The
amount of initial/periodic contributions set
forth in the Investment Plan shall be in
accordance with Section B par. 1 below. A
copy of the Plan shall be submitted to the
BSP within thirty (30) calendar days from
approval thereof by the banks board of
directors.
2. Eligible Securities and Investments
The sinking fund may be invested in the
following:
a. Evidence of indebtedness of the
Republic of the Philippines and/or the BSP,
or any other evidence of indebtedness or
of the Philippines;
b. Evidence of indebtedness or
obligation of the central monetary authority
of a foreign country, denominated in the
national currency of the issuing country, the
servicing and repayment of which are fully
guaranteed by the government of such
country;
c. Deposits with private and/or

government banks to the extent covered by
deposit insurance; and
d. Such other securities as the
Monetary Board may designate from time
to time.
Banks shall refrain from investing sinking
fund resources in highly volatile, high-risk
commercial instruments.
B. Operation
1. Amount of Annual Investment
The annual contribution to the sinking
fund shall be equal to the reserve for retirement
set up for the year, equivalent to the amount
of redeemable shares issued divided by their
respective terms, i.e., number of years from
date of issue to date of maturity.
2. Accounting Entries - please refer to
Annex A.
3. Administration
a. Responsible Officer. The sinking fund
shall be administered by the Chief Executive
Officer or his duly authorized representative,
who shall be an employee of the bank with a
rank not lower than manager or its equivalent,
preferably with experience in treasury
operations. The administrator shall be
responsible for investment decisions and the
maintenance of records of the sinking fund.
He shall be responsible for the execution of
the Investment Plan, and may deviate from
the Plan only upon the approval of the board
of directors.
In the case of RBs/Coop Banks, the bank
president or the general manager or the
officer-in-charge shall be designated as the
administrator of the sinking fund.
b. Sinking Fund Manager. The board
of directors shall delegate the management
APP. 47
05.12.31
of the fund to an independent fund manager,

e.g., trust company, where the amount of
the fund is equivalent to five percent (5%)
or more of the authorized redeemable
private preferred shares, in case of UBs and
KBs, or when such fund amounts to P1.0
million or more in the case of TBs and RBs/
Coop Banks: Provided, That the sinking
fund manager shall invest only in such
securities as are prescribed in these
guidelines: Provided, further, That a bank/
financial institution acting as sinking fund
manager may not designate the owner of
the fund it manages as the sinking fund
manager of its own sinking fund established
for the same purpose.
c. Reports. The administrator shall
submit to the Board a quarterly report on
the status of the Fund. The report shall
include the to-date balance of the fund, its
composition, income earned for the period,
a reasonable forecast for the various
financial instruments into which the fund
has been placed, and the administrators/

fund managers recommendations or
proposals regarding the fund. In its
evaluation of the report the Board shall
ascertain the degree of risk that the sinking
fund is exposed to and prescribe the
appropriate corrective actions.
The report of the administrator/fund
manager shall be under oath and made
available for examination by the BSP.
d. Review of the Investment Plan.
The Board shall conduct an annual
evaluation of the Investment Plan and the
performance of the administrator/fund
manager, and may introduce amendments
to or revisions of the Plan, a copy of which
shall be submitted to the BSP.
4. Sanctions. Failure to comply with the
guidelines shall subject the bank and its
directors and officers to the sanctions
prescribed in Item c of Subsec. X126.5
and Sections 36 and 37 of R.A. No. 7653.
APP. 47
05.12.31
Annex A
Summary of Pro-Forma Journal Entries to Record Sinking Fund Transactions

a. Setting up the sinking fund. The initial contribution to the sinking fund shall be recorded
as follows:
1.
To set up Reserve for Retirement of Preferred Stock

Undivided Profits/Surplus Free
xxx
Other Surplus Reserves Reserve for Retirement of Preferred Stock
xxx
To transfer from free to restricted Surplus the amount set up as reserve for redemption
of preferred shares.
2.
To set up the subsidiary account Sinking Fund (classified as Other Non-Current Assets)
IBODI/Others Sinking Fund for Redemption of Preferred Shares
xxx
Cash/Due from Banks
xxx
To set up the Sinking Fund for the Redemption of Preferred Shares.

b. Contributions to the sinking fund
1.
To set up the periodic Reserve for Retirement

xxx
xxx
To transfer from free to restricted Surplus reserve for redemption of preferred shares.
c. Income/loss from the sinking fund. The recognition of income/loss from the investments
shall follow the existing accounting treatment/procedures prescribed in the Manual of
Accounts for Banks
1.
To record receipt or accrual of income due to the sinking fund

Cash/Due from Banks/ Accrued Other Income Receivable
Other Income/Accrued Other Income
xxx
xxx
To record income earned from sinking fund assets.
APP. 47
05.12.31
d. Redemption
1.
Liquidation of sinking fund. Any gain or loss realized/incurred from liquidation of

the sinking fund investments shall be credited/charged to operations.
Undivided Profits/ Surplus Free
Cash
xxx

Other Income Gain on Sale of Sinking Fund Securities
xxx
xxx
To record the liquidation of sinking fund assets and recognize income therefrom.
or:
Cash
xxx
Loss from Sale of Sinking Fund Securities

xxx
xxx
To record the liquidation of sinking fund assets and loss incurred therefrom.
2.
Transfer to Undivided Profits/Surplus Free of the balance of the Restricted Surplus account
xxx
Undivided Profits/ Surplus Free
xxx
To close the restricted surplus account Other Surplus Reserves Retirement of Preferred
Stock and to revert the balance of the same to Undivided Profits/Surplus Free.
3.
Redemption of preferred shares, declaration of stock dividend equal to amount of

preferred shares redeemed and payment of such dividend through the issuance of
new shares of stock
(a)
Capital Stock Preferred Shares
Cash/Due from Banks
xxx
xxx
To record the redemption of redeemable preferred shares.

(b)
Dividends Distributable
xxx
Dividends Distributable
Capital Stock Common Stock/Preferred Stock
xxx
xxx
(c)
xxx
To record payment of stock dividend (common stock).

e. Treatment of changes in the market of the sinking fund portfolio. Gains and losses arising
from changes in market values of component securities shall be deferred (not recognized)
until the securities are liquidated.
APP. 48
05.12.31
ACTIVITIES WHICH MAY BE CONSIDERED UNSAFE

AND UNSOUND BANKING PRACTICES
(Appendix to Secs. X149 and X408)
The following activities are considered
only as guidelines and are not irrebutably
presumed to be unsafe or unsound.
Conversely, not all practices which might
under the circumstances be termed unsafe
or unsound are mentioned here. The
Monetary Board may consider any other
acts/omissions as unsafe or unsound
practices.
a. Operating with management
whose policies and practices are
detrimental to the bank and jeopardize the
safety of its deposits.
b. Operating with total adjusted
capital and reserves that are inadequate in
relation to the kind and quality of the assets
of the bank.
c. Operating in a way that produces
a deficit in net operating income.
d. Operating with a serious lack of
liquidity, especially in view of the asset and
deposit/liability structure of the bank.
e. Engaging in speculative and
hazardous investment policies.
f. Paying excessive cash dividends in
relation to the capital position, earnings
capacity and asset quality of the bank.
g. Excessive reliance on large, highinterest or volatile deposits/borrowings.
h. Excessive reliance on letters of
credit either issued by the bank or accepted
as collateral to loans advanced.
i. Excessive amounts of loan
participations sold.
j. Paying interest on participations
without advising participating institution
that the source of interest was not from the
borrower.
k. Selling participations without
disclosing to the purchasers of those
participations material, non-public
information known to the bank.
l. Failure to limit, control and

document contingent liabilities.
m. Engaging in hazardous lending and
lax collection policies and practices, as
evidenced by:
(1) An excessive volume of loans
subject to adverse classification;
(2) An excessive volume of loans
without adequate documentation,
including credit information;
(3) Excessive net loan losses;
(4) An excessive volume of loans in
relation to the total assets and deposits of
the bank;
(5) An excessive volume of weak and
self-serving loans to persons connected with
the bank, especially if a significant portion
of these loans are adversely classified;
(6) Excessive concentrations of credit,
especially if a substantial portion of this
credit is adversely classified;
(7) Indiscriminate participation in weak
and undocumented loans originated by
other institutions;
(8) Failing to adopt written loan
policies;
(9) An excessive volume of past due
or non-performing loans;
(10) Failure to diversify the loan
portfolio/asset mix of the institution; and
(11) Failure to make provision for an
adequate reserve for possible loan losses.
n. Permitting officers to engage in
lending practices beyond the scope of their
positions.
o. Operating the bank with inadequate
internal controls.
p. Failure to keep accurate and
updated books and records.
q. Operating the institution with
excessive volume of out-of-territory
loans.
APP. 48
05.12.31
r. Excessive volume of non-earning

assets.
s. Failure to heed warnings and
admonitions of the supervisory authorities
of the institution.
t. Continued and flagrant violation of
any law, rule, regulation or written agreement
between the institution and the BSP.
u. Any action likely to cause
insolvency or substantial dissipation of
assets or earnings of the institution or likely
to seriously weaken its condition or
otherwise seriously prejudice the interest

of its depositors/investors/clients.
v. Non-observance of the principles
and the requirements for managing and
monitoring large exposures and credit risk
concentrations under Subsec. X301.6a and
6b.
w. Improper or non-documentation of
repurchase agreements covering
government securities and commercial
papers and other negotiable and nonnegotiable securities or instruments.
APP. 49
05.12.31
CERTIFICATION OF COMPLIANCE WITH

SECTION 55.4 OF REPUBLIC ACT NO. 8791
Name of Bank
Telefax/Fax Number
The Deputy Governor

Supervision and Examination Sector
Manila, Philippines
Sir:
This is to certify that this bank, in the conduct of its business involving bank deposits,
does not have in its employ any casual/non-regular personnel or employees/personnel, who
are working after the probationary period of six (6) months, are still not being considered
regular/permanent employees, personnel of the bank.
This certification is being submitted in compliance with the requirements of Circular
No. 336 dated 02 July 2002 and Circular Letter dated 11 November 2003 implementing
Section 55.4 of the General Banking Law of 2000.
Very truly yours,

-------------------Authorized Officers Signature
Over Printed Name
Designation
APP. 50
05.12.31
GUIDELINES ON RETENTION AND DISPOSAL OF

RECORDS OF RURAL AND COOPERATIVE BANKS
The following guidelines shall govern the retention and disposal of records of RBs/Coop
Banks.
A. Classification of Records and Documents
Retention Period
1. Accounting Records
(a) Books of accounts, audited financial/annual reports
(b) Tickets and supporting papers
(c) Official receipts (2nd or 3rd copy)
Permanent
10 years
10 years
2. Organization papers for the establishment of RBs/

Coop Banks, branches/offices (organizational file),
special license/authority granted by BSP (e.g. authority
to accept D/Ds, government deposits,fringe benefit plan)
10 years
3. Manual of operations, including compliance system,

policies on personnel, security and other related matters
Permanent
4. Stock and transfer book and related records and documents
Permanent
5. Minutes of meeting
(a) Stockholders/general assembly, board of directors
(b) Other committees
Permanent
10 years
6. Human resource files

(a) Documents pertaining to members of the board of
directors and stockholders
(b) Bank officers and staff
(c) Officers and staff with derogatory information
7. Correspondence (to and from)
(a) BSP on examination findings/exceptions and directives;
rediscounting, loans and advances
(b) Other government regulatory/supervisory authorities,
e.g. PDIC, BIR, DOLE, SSS
(c) All other correspondence
8. Reports to BSP
(Financial and non-financial reports)
Permanent
10 years from
resignation/separation
retirement
Permanent
Permanent
Permanent
6 years
6 years
APP. 50
05.12.31
9. Reports to other government and non-government

institutions
Minimum of 6 years or
as prescribed by the
institution concerned
10. Records and documents on court cases/complaints
Permanent
11. Documents, certificates of ownership/titles on

bank assets
Permanent
12. All other records/documents of all transactions,

e.g. loans and investments, disposal of assets,
deposit liabilities and borrowings, expenditures
and income, disbursements, disposal of assets
10 years from dates

when accounts were
closed/disposed/settle
Notwithstanding the retention periods herein, RBs/Coop Banks may preserve for a longer
period those records/documents they deem necessary.
B. Procedural requirements on disposal of banks records and documents
1. No RBs/Coop Banks shall dispose of any records without the prior approval of its board
of directors.
2. Notice for disposal of records and documents in the prescribed form (Annex A) which
shall include the proposed date of disposal and list of the records and documents to be
disposed of in accordance with the above guidelines shall be submitted to the appropriate
supervising and examining department within ten (10) banking days from date of approval of
the board of directors. A copy of the afore-cited board resolution duly certified by the banks
corporate/cooperative secretary should likewise be attached to the notice. The bank may
proceed to dispose of the records and documents in the submitted list if after thirty (30)
banking days from date the notice required herein shall have been received by the appropriate
supervising and examining department, no advice against such notice has been received by
the bank concerned.
3. All records and documents for disposal must be burned or shredded in the presence of a
director of the bank duly designated by the board of directors, the Chief Operating Officer or
equivalent rank and the Compliance Officer.
4. The designated director, the Chief Operating Officer (or its equivalent) and the Compliance
Officer shall execute a joint affidavit (Annex B) attesting to the burning/ shredding of the
records/documents. The original and triplicate copies shall be kept permanently by the
Treasurer or Cashier and the duplicate copy shall be submitted to the appropriate
supervising and examining department within ten (10) banking days from date of actual
disposal.
APP. 50
05.12.31
Annex A
______________________________
Name of Rural/Cooperative Bank
______________________________
Address
NOTICE OF DISPOSAL OF RECORDS/DOCUMENTS
__________________
Date
The Director
Department of Rural Banks
Manila
The Board of Directors of the __________________________________________ under
(Name of Rural/Cooperative Bank)
Board Resolution No.__________ dated _________________ (copy of the resolution attached)

approved the disposal of the following records/documents:
Classification of Records and Documents

1. Accounting Records:
a. Tickets and supporting papers
b. Official Receipts
2. Correspondence:
3. Reports to BSP
4. Other reports to government and
non-government institutions
5. Other records/documents: (specify)
______________________________
______________________________
The
above-stated
Dates of Transactions/Records/Documents
From
To
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
_________________
records/documents
are
to
be
disposed
of
thru
_______________________________ in my presence and of _________________ Director, and

(manner of disposal: shredding or burning)
_____________________, Compliance Officer, on _____________ at _______________________.

(date)
(time and place)
____________________________________________________
Signature over printed name of Chief

Operating Officer (COO) or its equivalent
APP. 50
05.12.31
Annex B
REPUBLIC OF THE PHILIPPINES
)
CITY/MUNICIPALITY OF __________ ) S.S
PROVINCE OF ___________________ )
JOINT AFFIDAVIT
We, namely: ________________________, Director; ________________, Chief Operating
Officer (or Manager/equivalent rank); and ________________, Compliance Officer, all of
legal ages, representing the Rural/Cooperative Bank of ______________, Inc. after having
been sworn to in accordance with law do hereby depose and say:
1. That we are the bank officials of the Rural/Cooperative Bank of __________, Inc.,
duly designated under Board Resolution No. ____ dated ____________, to ensure
and witness the proper disposal of certain records, described in the attached Notice
of Disposal of Bank Records/Documents dated _______ (Annex A).
2. That we have witnessed the burning/shredding of those records/documents described
in the Notice of Disposal of Bank Records/Documents dated ____________that took
place on ________________ 20__ at _____________ am/pm at the premises of the
Rural/Cooperative Bank of _______________.
3. That we have executed this Affidavit to attest to the truthfulness of the foregoing and
in accordance with the rules prescribed by the Bangko Sentral ng Pilipinas (BSP) set
forth under Circular-Letter No. ___ dated _________, 20__.
IN WITNESS WHEREOF, we have set our hands this _____ day of _______20__ at
______________________, Philippines.
___________________________ ___________________________________________________
SUBSCRIBED AND SWORN TO BEFORE ME, this ______ day of ________ 20__ at
______________, the foregoing Affiants, exhibiting their respective Community Tax Certificates
(CTC), to wit:
Name
CTC No.
Date Issued
Place Issued
NOTARY PUBLIC
My Commission expires on December 31, 20___
PTR No. _____ issued on ________ 20__ at _______
Doc. No. _____
Book No. _____
Page No. _____
Series of 20___.
APP. 51
05.12.31
FORMAT CERTIFICATION ON FCDU LENDING TO RBU

(Appendix to Subsec. X501.3c)
_____________________________________________________________
(Name of Bank)
CERTIFICATION
Pursuant to Subsec. X501.3c of the Manual of Regulations for Banks, we hereby
certify that on all banking days of the month ended _____________, 200 __ :
1
a) There were no foreign currency borrowings by the Regular Banking Unit (RBU)
from the Foreign Currency Deposit Unit (FCDU)/Expanded FCDU (EFCDU)
b)
RBU had foreign currency borrowings from FCDU/EFCDU and
1. Total outstanding balance of such foreign currency borrowings did not exceed
the prescribed cap (i.e., lower of total outstanding balance on RBUs on-balance
sheet foreign currency trade assets or thirty percent (30%) of the level of FCDU/
EFCDU deposit liabilities), and
2. The borrowed foreign currency funds were utilized by RBU solely for its
foreign currency trade transactions.
We further certify that, to the best of our knowledge, the foregoing statements are
true and correct.
President or Country
Manager (for FX Banks)
TIN:
Com. Tax Cert No.:
Issued on:
Issued at:
Compliance Officer
TIN:
Com. Tax Cert No.:
Issued on:
Issued at:
Head of
Treasury Department
TIN:
Com. Tax Cert No.:
Issued on:
Issued at:
Subscribed and sworn to before me, this _______ day of ___________, 200___,
affiants exhibiting their respective Community Tax Certificates as indicated above.
_________________________
Person administering oath
1
Check appropriate box.
APP. 51a
05.12.31
Sample Computation on FCDU Lending to RBU

(Appendix to Subsec. X501.3c)
FCDU LENDING to RBU
SAMPLE COMPUTATION - 30% CAP
(Amounts in Million USD)
Average FCDU/EFCDU
Deposit Liabilities1/
Amount
30%
August
Sept
1/
2
9
12
13
14
15
16
19
20
21
22
23
26
27
28
29
30
2
3
4
5
6
9
10
11
12
140
120
42
36
Average OnBalance Sheet

Forex Trade
Asset2/
Cap for
the
Week
Borrowing-FCDU/EFCDU Account
Debit
Credit Balance
30
45
30
110
33
10
5
5
8
2
1
2
3
36
36
200
60
42
33
170
51
3 2/
27
42
6
2
4
250
75
3
2
66
27
15
4
4
10
15
20
28
30
31
33
36
36
36
33
33
33
33
33
39
41
37
40
42
27
23
27
Computed using 2-month rolling data (i.e., for week ended 02 August, average of daily data from 03 June to 02 August;
week ended 09 August, average of daily data from 10 June to 09 August, etc.).
Average daily balance for each observation period = Sum of daily balances/Total banking days
2/
RBU should pay off to reduce outstanding balance to within prescribed limit.
APP. 52
05.12.31
REVISED IMPLEMENTING RULES AND REGULATIONS

R.A. NO. 9160, AS AMENDED BY R.A. NO. 9194
RULE 1 TITLE
Rule 1.a. Title. - These Rules shall be known
and cited as the Revised Rules and
Regulations Implementing R.A. No. 9160,
(the Anti-Money Laundering Act of 2001
[AMLA]), as amended by R.A. No. 9194.
Rule 1.b. Purpose. - These Rules are
promulgated to prescribe the procedures
and guidelines for the implementation of
the AMLA, as amended by R.A. No. 9194.
RULE 2 DECLARATION OF POLICY
Rule 2. Declaration of Policy. - It is hereby
declared the policy of the State to protect
the integrity and confidentiality of bank
accounts and to ensure that the
Philippines shall not be used as a moneylaundering site for the proceeds of any
unlawful activity. Consistent with its
foreign policy, the Philippines shall
extend cooperation in transnational
investigations and prosecutions of persons
involved in money laundering activities
wherever committed.
RULE 3 DEFINITIONS
Rule 3. Definitions. For purposes of this
Act, the following terms are hereby defined
as follows:
Rule 3.a. Covered Institution refers to:
Rule 3.a.1. Banks, offshore banking
units, quasi-banks, trust entities, non-stock
savings and loan associations, pawnshops,
and all other institutions, including their
subsidiaries and affiliates supervised and/
or regulated by the BSP.
(a) A subsidiary means an entity more

than fifty percent (50%) of the outstanding
voting stock of which is owned by a bank,
quasi-bank, trust entity or any other
institution supervised or regulated by the
BSP.
(b) An affiliate means an entity at least
twenty percent (20%) but not exceeding fifty
percent (50%) of the voting stock of which
is owned by a bank, quasi-bank, trust entity,
or any other institution supervised and/or
regulated by the BSP.
Rule 3.a.2. Insurance companies,
insurance agents, insurance brokers,
professional reinsurers, reinsurance brokers,
holding companies, holding company
systems and all other persons and entities
supervised and/or regulated by the
Insurance Commission (IC).
(a) An insurance company includes
those entities authorized to transact
insurance business in the Philippines,
whether life or non-life and whether
domestic, domestically incorporated or
branch of a foreign entity. A contract of
insurance is an agreement whereby one
undertakes for a consideration to indemnify
another against loss, damage or liability
arising from an unknown or contingent
event. Transacting insurance business
includes making or proposing to make, as
insurer, any insurance contract, or as surety,
any contract of suretyship as a vocation and
not as merely incidental to any other
legitimate business or activity of the surety,
doing any kind of business specifically
recognized as constituting the doing of an
insurance business within the meaning of
Presidential Decree (P.D.) No. 612, as
amended, including a reinsurance
business and doing or proposing to do any
APP. 52
05.12.31
business in substance equivalent to any

of the foregoing in a manner designed to
evade the provisions of P.D. No. 612, as
amended.
(b) An insurance agent includes any
person who solicits or obtains insurance on
behalf of any insurance company or
transmits for a person other than himself an
application for a policy or contract of
insurance to or from such company or offers
or assumes to act in the negotiation of such
insurance.
(c) An insurance broker includes any
person who acts or aids in any manner in
soliciting, negotiating or procuring the
making of any insurance contract or in
placing risk or taking out insurance, on
behalf of an insured other than himself.
(d) A professional reinsurer includes
any person, partnership, association or
corporation that transacts solely and
exclusively reinsurance business in the
Philippines,
whether
domestic,
domestically incorporated or a branch of a
foreign entity. A contract of reinsurance is
one by which an insurer procures a third
person to insure him against loss or liability
by reason of such original insurance.
(e) A reinsurance broker includes any
person who, not being a duly authorized
agent, employee or officer of an insurer
in which any reinsurance is effected, acts
or aids in any manner in negotiating
contracts of reinsurance or placing risks
of effecting reinsurance, for any insurance
company authorized to do business in the
Philippines.
(f) A holding company includes any
person who directly or indirectly controls
any authorized insurer. A holding company
system includes a holding company
together with its controlled insurers and
controlled persons.
Rule 3.a.3. (i) Securities dealers, brokers,
salesmen, associated persons of brokers or
dealers, IHs, investment agents and
consultants, trading advisors, and other

entities managing securities or rendering
similar services, (ii) mutual funds or openend investment companies, close-end
investment companies, common trust funds,
pre-need companies or issuers and other
similar entities; (iii) foreign exchange
corporations, money changers, money
payment, remittance, and transfer companies
and other similar entities, and (iv) other
entities administering or otherwise dealing
in currency, commodities or financial
derivatives based thereon, valuable objects,
cash substitutes and other similar monetary
instruments or property supervised and/or
regulated by the Securities and Exchange
Commission (SEC).
(a) A securities broker includes a
person engaged in the business of buying
and selling securities for the account of
others.
(b) A securities dealer includes any
person who buys and sells securities for his/
her account in the ordinary course of
business.
(c) A securities salesman includes a
natural person, employed as such or as an
agent, by a dealer, issuer or broker to buy
and sell securities.
(d) An associated person of a broker
or dealer includes an employee thereof who
directly exercises control or supervisory
authority, but does not include a salesman,
or an agent or a person whose functions
are solely clerical or ministerial.
(e) An investment house includes an
enterprise which engages or purports to
engage, whether regularly or on an isolated
basis, in the underwriting of securities of
another person or enterprise, including
securities of the Government and its
instrumentalities.
(f) A mutual fund or an open-end
investment company includes an
investment company which is offering for
sale or has outstanding, any redeemable
security of which it is the issuer.
APP. 52
05.12.31
(g) A closed-end investment company

includes an investment company other than
open-end investment company.
(h) A common trust fund includes a
fund maintained by an entity authorized
to perform trust functions under a written
and formally established plan, exclusively
for the collective investment and
reinvestment of certain money
representing participation in the plan
received by it in its capacity as trustee,
for the purpose of administration, holding
or management of such funds and/or
properties for the use, benefit or
advantage of the trustor or of others
known as beneficiaries.
(i) A pre-need company or issuer
includes any corporation supervised and/
or regulated by the SEC and is authorized
or licensed to sell or offer for sale pre-need
plans. Pre-need plans are contracts which
provide for the performance of future
service(s) or payment of future monetary
consideration at the time of actual need,
payable either in cash or installment by the
planholder at prices stated in the contract
with or without interest or insurance
coverage and includes life, pension,
education, internment and other plans,
which the Commission may, from time to
time, approve.
(j) A foreign exchange corporation
includes any enterprise which engages or
purports to engage, whether regularly or on
an isolated basis, in the sale and purchase
of foreign currency notes and such other
foreign-currency denominated non-bank
deposit transactions as may be authorized
under its articles of incorporation.
(k) Investment Advisor/Agent/Consultant
shall refer to any person:
(1) who for an advisory fee is engaged
in the business of advising others, either
directly or through circulars, reports,
publications or writings, as to the value of
any security and as to the advisability of
trading in any security; or
(2) who for compensation and as part

of a regular business, issues or promulgates,
analyzes reports concerning the capital
market, except:
(a) any bank or trust company;
(b) any journalist, reporter, columnist,
editor, lawyer, accountant, teacher;
(c) the publisher of any bonafide
newspaper, news, business or
financial publication of general and
regular circulation, including their
employees;
(d) any contract market;
(e) such other person not within the
intent of this definition, provided
that the furnishing of such service
by the foregoing persons is solely
incidental to the conduct of their
business or profession.
(3) any person who undertakes the
management of portfolio securities of investment
companies, including the arrangement of
purchases, sales or exchanges of securities.
(l) A moneychanger includes any
person in the business of buying or selling
foreign currency notes.
(m) A money payment, remittance and
transfer company includes any person
offering to pay, remit or transfer or transmit
money on behalf of any person to another
person.
(n) Customer refers to any person or
entity that keeps an account, or otherwise
transacts business, with a covered institution
and any person or entity on whose behalf
an account is maintained or a transaction is
conducted, as well as the beneficiary of said
transactions. A customer also includes the
beneficiary of a trust, an investment fund, a
pension fund or a company or person
whose assets are managed by an asset
manager, or a grantor of a trust. It includes
any insurance policy holder, whether actual
or prospective.
(o) Property includes any thing or
item of value, real or personal, tangible or
intangible, or any interest therein or any
APP. 52
05.12.31
benefit, privilege, claim or right with respect

thereto.
Rule 3.b. Covered Transaction is a
transaction in cash or other equivalent
monetary instrument involving a total
amount in excess of PhP500,000.00 within
one (1) banking day.
Rule 3.b.1. Suspicious transactions are
transactions, regardless of amount, where
any of the following circumstances exists:
(1) There is no underlying legal or trade
obligation, purpose or economic
justification;
(2) The client is not properly identified;
(3) The amount involved is not
commensurate with the business or
financial capacity of the client;
(4) Taking into account all known
circumstances, it may be perceived that the
clients transaction is structured in order to
avoid being the subject of reporting
requirements under the act;
(5) Any circumstance relating to the
transaction which is observed to deviate
from the profile of the client and/or the
clients past transactions with the covered
institution;
(6) The transaction is in any way related
to an unlawful activity or any money
laundering activity or offense under this act
that is about to be, is being or has been
committed; or
(7) Any transaction that is similar,
analogous or identical to any of the
foregoing.
Rule 3.c. Monetary Instrument refers to:
(1) Coins or currency of legal tender of
the Philippines, or of any other country;
(2) Drafts, checks and notes;
(3) Securities or negotiable instruments,
bonds, commercial papers, deposit
certificates, trust certificates, custodial
receipts or deposit substitute instruments,
trading orders, transaction tickets and
confirmations of sale or investments and

money market instruments;
(4) Contracts or policies of insurance,
life or non-life, and contracts of suretyship;
and
(5) Other similar instruments where
title thereto passes to another by
endorsement, assignment or delivery.
Rule 3.d. Offender refers to any person
who commits a money laundering offense.
Rule 3.e. Person refers to any natural or
juridical person.
Rule 3.f. Proceeds refers to an amount
derived or realized from an unlawful
activity. It includes:
(1) All material results, profits, effects
and any amount realized from any unlawful
activity;
(2) All monetary, financial or economic
means, devices, documents, papers or
things used in or having any relation to any
unlawful activity; and
(3) All moneys, expenditures,
payments, disbursements, costs, outlays,
charges, accounts, refunds and other similar
items for the financing, operations, and
maintenance of any unlawful activity.
Rule 3.g. Supervising Authority refers to
the BSP, the SEC and the IC. Where the BSP,
SEC or IC supervision applies only to the
registration of the covered institution, the
BSP, the SEC or the IC, within the limits of
the AMLA, shall have the authority to require
and ask assistance from the government
agency having regulatory power and/or
licensing authority over said covered
institution for the implementation and
enforcement of the AMLA and these Rules.
Rule 3.h. Transaction refers to any act
establishing any right or obligation or giving
rise to any contractual or legal relationship
between the parties thereto. It also includes
APP. 52
05.12.31
any movement of funds by any means with

a covered institution.
Rule 3.i. Unlawful activity refers to any act
or omission or series or combination thereof
involving or having relation, to the
following:
(A) Kidnapping for ransom under Article
267 of Act No. 3815, otherwise known as
the Revised Penal Code, as amended;
(1) Kidnapping for ransom
(B) Sections 4, 5, 6, 8, 9, 10, 12, 13,
14, 15 and 16 of R.A. No. 9165, otherwise
known as the Comprehensive Dangerous
Drugs Act of 2002;
(2) Importation of prohibited drugs;
(3) Sale of prohibited drugs;
(4) Administration of prohibited drugs;
(5) Delivery of prohibited drugs
(6) Distribution of prohibited drugs
(7) Transportation of prohibited drugs
(8) Maintenance of a Den, Dive or
Resort for prohibited users
(9) Manufacture of prohibited drugs
(10) Possession of prohibited drugs
(11) Use of prohibited drugs
(12) Cultivation of plants which are
sources of prohibited drugs
(13) Culture of plants which are sources
of prohibited drugs
(C) Section 3 paragraphs b, c, e, g, h
and i of R.A. No. 3019, as amended,
otherwise known as the Anti-Graft and
Corrupt Practices Act;
(14) Directly or indirectly requesting or
receiving any gift, present, share,
percentage or benefit for himself or for any
other person in connection with any
contract or transaction between the
Government and any party, wherein the
public officer in his official capacity has to
intervene under the law;
(15) Directly or indirectly requesting or
receiving any gift, present or other
pecuniary or material benefit, for himself
or for another, from any person for whom

the public officer, in any manner or
capacity, has secured or obtained, or will
secure or obtain, any government permit
or license, in consideration for the help
given or to be given, without prejudice to
Section 13 of R.A. 3019;
(16)Causing any undue injury to any
party, including the government, or giving
any private party any unwarranted benefits,
advantage or preference in the discharge of
his official, administrative or judicial
functions through manifest partiality,
negligence;
(17)Entering, on behalf of the
government, into any contract or transaction
the same, whether or not the public officer
profited or will profit thereby;
(18)Directly or indirectly having
financial or pecuniary interest in any
business contract or transaction in
connection with which he intervenes or
takes part in his official capacity, or in which
he is prohibited by the Constitution or by
any law from having any interest;
(19)Directly or indirectly becoming
interested, for personal gain, or having
material interest in any transaction or act
requiring the approval of a board, panel or
group of which he is a member, and which
exercise of discretion in such approval, even
if he votes against the same or he does not
participate in the action of the board,
committee, panel or group.
(D) Plunder under R.A. No. 7080, as
amended;
(20) Plunder through misappropriation,
conversion, misuse or malversation of
public funds or raids upon the public
treasury;
(21) Plunder by receiving, directly or
indirectly, any commission, gift, share,
percentage, kickbacks or any other form of
pecuniary benefit from any person and/or
APP. 52
05.12.31
entity in connection with any government

contract or project or by reason of the office
or position of the public officer concerned;
(22) Plunder by the illegal or fraudulent
conveyance or disposition of assets
belonging to the National Government or
any of its subdivisions, agencies,
instrumentalities or government-owned or
controlled corporations or their subsidiaries;
(23) Plunder by obtaining, receiving or
accepting, directly or indirectly, any shares
of stock, equity or any other form of interest
or participation including the promise of
future employment in any business
enterprise or undertaking;
(24) Plunder by establishing agricultural,
industrial or commercial monopolies or other
combinations and/or implementation of
decrees and orders intended to benefit
particular persons or special interests;
(25) Plunder by taking undue
advantage of official position, authority,
relationship, connection or influence to
unjustly enrich himself or themselves at the
expense and to the damage and prejudice
of the Filipino people and the Republic of
the Philippines.
(E) Robbery and extortion under
Articles 294, 295, 296, 299, 300, 301 and
302 of the Revised Penal Code, as
amended;
(26) Robbery with violence or
intimidation of persons;
(27) Robbery with physical injuries,
committed in an uninhabited place and by
a band, or with use of firearms on a street,
road or alley;
(28) Robbery in an uninhabited house
or public building or edifice devoted to
worship.
(F) Jueteng and Masiao punished as
illegal gambling under Presidential Decree
No. 1602;
(29) Jueteng;
(30) Masiao.
(G) Piracy on the high seas under the

Revised Penal Code, as amended and
Presidential Decree No. 532;
(31) Piracy on the high seas;
(32) Piracy in inland Philippine waters;
(33) Aiding and abetting pirates and
brigands.
(H) Qualified theft under Article 310
of the Revised Penal Code, as amended;
(34) Qualified theft.
(I) Swindling under Article 315 of the
Revised Penal Code, as amended;
(35) Estafa with unfaithfulness or abuse
of confidence by altering the substance,
quality or quantity of anything of value
which the offender shall deliver by virtue
of an obligation to do so, even though such
obligation be based on an immoral or illegal
consideration;
of confidence by misappropriating or
converting, to the prejudice of another,
money, goods or any other personal
property received by the offender in trust
or on commission, or for administration, or
under any other obligation involving the
duty to make delivery or to return the same,
even though such obligation be totally or
partially guaranteed by a bond; or by
denying having received such money,
goods, or other property;
of confidence by taking undue advantage
of the signature of the offended party in
blank, and by writing any document above
such signature in blank, to the prejudice of
the offended party or any third person;
(38) Estafa by using a fictitious name,
or falsely pretending to possess power,
influence, qualifications, property, credit,
agency, business or imaginary transactions,
or by means of other similar deceits;
(39) Estafa by altering the quality,
fineness or weight of anything pertaining
to his art or business;
APP. 52
05.12.31
(40) Estafa by pretending to have bribed

any government employee;
(41) Estafa by postdating a check, or
issuing a check in payment of an obligation
when the offender has no funds in the bank,
or his funds deposited therein were not
sufficient to cover the amount of the check;
(42) Estafa by inducing another, by
means of deceit, to sign any document;
(43) Estafa by resorting to some
fraudulent practice to ensure success in a
gambling game;
(44) Estafa by removing, concealing or
destroying, in whole or in part, any court
record, office files, document or any other
papers.
(J) Smuggling under R.A. Nos. 455
and 1937;
(45) Fraudulent importation of any
vehicle;
(46) Fraudulent exportation of any
vehicle;
(47) Assisting in any fraudulent
importation;
(48) Assisting in any fraudulent
exportation;
(49) Receiving smuggled article after
fraudulent importation;
(50) Concealing smuggled article after
(51) Buying smuggled article after
(52) Selling smuggled article after
(53) Transportation of smuggled article
after fraudulent importation;
(54) Fraudulent practices against
customs revenue.
(K) Violations under R.A. No. 8792,
otherwise known as the Electronic
Commerce Act of 2000;
K.1. Hacking or cracking, which refers to:
(55) unauthorized access into or
interference in a computer system/server or
information and communication system; or
(56) any access in order to corrupt,

alter, steal, or destroy using a computer
or other similar information and
communication devices, without the
knowledge and consent of the owner of the
computer or information and communications
system, including
(57) the introduction of computer
viruses and the like, resulting in the
corruption, destruction, alteration, theft or
loss of electronic data messages or
electronic document;
K.2. Piracy, which refers to:
(58) the unauthorized copying,
reproduction,
(59) the unauthorized dissemination,
distribution,
(60) the unauthorized importation,
(61) the unauthorized use, removal,
alteration, substitution, modification,
(62) the unauthorized storage,
uploading, downloading, communication,
making available to the public, or
(63) the unauthorized broadcasting, of
protected material, electronic signature or
copyrighted works including legally
protected sound recordings or phonograms
or information material on protected works,
through the use of telecommunication
networks, such as, but not limited to, the
internet, in a manner that infringes
intellectual property rights;
K.3. Violations of the Consumer Act or
R.A. No. 7394 and other relevant or
pertinent laws through transactions covered
by or using electronic data messages or
electronic documents:
(64) Sale of any consumer product that
is not in conformity with standards under
the Consumer Act;
(65) Sale of any product that has been
banned by a rule under the Consumer Act;
(66) Sale of any adulterated or
mislabeled product using electronic
documents;
APP. 52
05.12.31
(67) Adulteration or misbranding of any

consumer product;
(68) Forging, counterfeiting or
simulating any mark, stamp, tag, label or
other identification device;
(69) Revealing trade secrets;
(70) Alteration or removal of the
labeling of any drug or device held for sale;
(71) Sale of any drug or device not
registered in accordance with the provisions
of the E-Commerce Act;
(72) Sale of any drug or device by any
person not licensed in accordance with the
provisions of the E-Commerce Act;
(73) Sale of any drug or device beyond
its expiration date;
(74) Introduction into commerce of any
mislabeled or banned hazardous substance;
(75) Alteration or removal of the
labeling of a hazardous substance;
(76) Deceptive sales acts and practices;
(77) Unfair or unconscionable sales acts
and practices;
(78) Fraudulent practices relative to
weights and measures;
(79) False
representations
in
advertisements as the existence of a
warranty or guarantee;
(80) Violation of price tag requirements;
(81) Mislabeling consumer products;
(82) False, deceptive or misleading
advertisements;
(83) Violation of required disclosures
on consumer loans;
(84) Other violations of the provisions
of the E-Commerce Act;
(L) Hijacking and other violations
under R.A. No. 6235; destructive arson
and murder, as defined under the Revised
Penal Code, as amended, including those
perpetrated by terrorists against noncombatant persons and similar targets;
(85) Hijacking;
(86) Destructive arson;
(87) Murder;
(88) Hijacking, destructive arson or
murder perpetrated by terrorists against noncombatant persons and similar targets;

(M) Fraudulent practices and other
violations under R.A. No. 8799, otherwise
known as the Securities Regulation Code
of 2000;
(89) Sale, offer or distribution of
securities within the Philippines without a
registration statement duly filed with and
approved by the SEC;
(90) Sale or offer to the public of any
pre-need plan not in accordance with the
rules and regulations which the SEC shall
prescribe;
(91) Violation
of
reportorial
requirements imposed upon issuers of
securities;
(92) Manipulation of security prices by
creating a false or misleading appearance
of active trading in any listed security traded
in an Exchange or any other trading market;
effecting, alone or with others, a series of
transactions in securities that raises their
prices to induce the purchase of a security,
whether of the same or different class, of
the same issuer or of a controlling,
controlled or commonly controlled
company by others;
transactions in securities that depresses their
price to induce the sale of a security,
whether of the same or different class, of
the same issuer or of a controlling,
controlled or commonly controlled
company by others;
transactions in securities that creates active
trading to induce such a purchase or sale
though manipulative devices such as
marking the close, painting the tape,
squeezing the float, hype and dump, boiler
room operations and such other similar
devices;
APP. 52
05.12.31
(96) Manipulation of security prices

by circulating or disseminating information
that the price of any security listed in an
Exchange will or is likely to rise or fall
because of manipulative market operations
of any one or more persons conducted for
the purpose of raising or depressing the
price of the security for the purpose of
inducing the purchase or sale of such
security;
by making false or misleading statements
with respect to any material fact, which he
knew or had reasonable ground to believe
was so false and misleading, for the purpose
of inducing the purchase or sale of any
security listed or traded in an Exchange;
by effecting, alone or with others, any series
of transactions for the purchase and/or sale
of any security traded in an Exchange for
the purpose of pegging, fixing or stabilizing
the price of such security, unless otherwise
allowed by the Securities Regulation Code
or by the rules of the SEC;
(99) Sale or purchase of any security
using any manipulative deceptive device
or contrivance;
(100) Execution of short sales or stoploss order in connection with the purchase
or sale of any security not in accordance
with such rules and regulations as the SEC
may prescribe as necessary and appropriate
in the public interest or the protection of
the investors;
(101) Employment of any device,
scheme or artifice to defraud in
connection with the purchase and sale of
any securities;
(102) Obtaining money or property in
connection with the purchase and sale of
any security by means of any untrue
statement of a material fact or any omission
to state a material fact necessary in order to
make the statements made, in the light of
the circumstances under which they were
made, not misleading;
(103) Engaging in any act, transaction,

practice or course of action in the sale and
purchase of any security which operates or
would operate as a fraud or deceit upon any
person;
(104) Insider trading;
(105) Engaging in the business of buying
and selling securities in the Philippines as a
broker or dealer, or acting as a salesman, or
an associated person of any broker or dealer
without any registration from the Commission;
(106) Employment by a broker or
dealer of any salesman or associated person
or by an issuer of any salesman, not
registered with the SEC;
(107) Effecting any transaction in any
security, or reporting such transaction, in
an Exchange or using the facility of an
Exchange which is not registered with the SEC;
(108) Making use of the facility of a
clearing agency which is not registered with
the SEC;
(109) Violations
of
margin
requirements;
(110) Violations on the restrictions on
borrowings by members, brokers and
dealers;
(111) Aiding and Abetting in any
violations of the Securities Regulation Code;
(112) Hindering, obstructing or
delaying the filing of any document required
under the Securities Regulation Code or the
rules and regulations of the SEC;
(113) Violations of any of the provisions
of the implementing rules and regulations
of the SEC;
(114) Any other violations of any of the
provisions of the Securities Regulation Code.
(N) Felonies or offenses of a similar
nature to the afore-mentioned unlawful
activities that are punishable under the
penal laws of other countries.
In determining whether or not a felony
or offense punishable under the penal laws
of other countries, is of a similar nature,
as to constitute the same as an unlawful
APP. 52
05.12.31
activity under the AMLA, the nomenclature

of said felony or offense need not be
identical to any of the predicate crimes listed
under Rule 3.i.
RULE 4 MONEY LAUNDERING
OFFENSE
Rule 4.1. Money Laundering Offense. Money laundering is a crime whereby the
proceeds of an unlawful activity as herein
defined are transacted, thereby making
them appear to have originated from
legitimate sources. It is committed by the
following:
(a) Any person knowing that any
monetary instrument or property represents,
involves, or relates to, the proceeds of any
unlawful activity, transacts or attempts to
transact said monetary instrument or
property.
(b) Any person knowing that any
monetary instrument or property involves
the proceeds of any unlawful activity,
performs or fails to perform any act as a
result of which he facilitates the offense of
money laundering referred to in paragraph
(a) above.
(c) Any person knowing that any
monetary instrument or property is required
under this Act to be disclosed and filed with
the Anti-Money Laundering Council
(AMLC), fails to do so.
RULE 5 JURISDICTION OF MONEY
LAUNDERING CASES AND MONEY
LAUNDERING INVESTIGATION
PROCEDURES
Rule 5.1. Jurisdiction of Money Laundering
Cases. - The Regional Trial Courts shall have
the jurisdiction to try all cases on money
laundering. Those committed by public
officers and private persons who are in
conspiracy with such public officers shall be
under the jurisdiction of the Sandiganbayan.
Rule 5.2. Investigation of Money

Laundering Offenses. - The AMLC shall
investigate:
(a) Suspicious transactions;
(b) Covered transactions deemed suspicious after an investigation conducted by
the AMLC;
(c) Money laundering activities; and
(d) Other violations of this act.
Rule 5.3. Attempts at Transactions. Section 4 (a) and (b) of the AMLA provides
that any person who attempts to transact
any monetary instrument or property
representing, involving or relating to the
proceeds of any unlawful activity shall be
prosecuted for a money laundering offense.
Accordingly, the reports required under
Rule 9.3 (a) and (b) of these Rules shall
include those pertaining to any attempt by
any person to transact any monetary
instrument or property representing,
involving or relating to the proceeds of any
unlawful activity.
RULE 6 PROSECUTION OF MONEY
LAUNDERING
Rule 6.1. Prosecution of Money
Laundering. (a) Any person may be charged with
and convicted of both the offense of
money laundering and the unlawful
activity as defined under Rule 3 (i) of the
AMLA.
(b) Any proceeding relating to the
unlawful activity shall be given precedence
over the prosecution of any offense or
violation under the AMLA without
prejudice to the application Ex-Parte by the
AMLC to the Court of Appeals for a Freeze
Order with respect to the monetary
instrument or property involved therein and
resort to other remedies provided under the
AMLA, the rules of court and other pertinent
laws and rules.
APP. 52
05.12.31
Rule 6.2. When the AMLC finds, after

investigation, that there is probable cause
to charge any person with a money
laundering offense under Section 4 of the
AMLA, it shall cause a complaint to be
filed, pursuant to Section 7 (4) of the
AMLA, before the Department of Justice
or the Ombudsman, which shall then
conduct the preliminary investigation of
the case.
Rule 6.3. After due notice and hearing in
the preliminary investigation proceedings
before the Department of Justice, or the
Ombudsman, as the case may be, and the
latter should find probable cause of a
money laundering offense, it shall file the
necessary information before the Regional
Trial Courts or the Sandiganbayan.
Rule 6.4. Trial for the money laundering
offense shall proceed in accordance with
the Code of Criminal Procedure or the Rules
of Procedure of the Sandiganbayan, as the
case may be.
Rule 6.5. Knowledge of the offender that
any monetary instrument or property
represents, involves, or relates to the
proceeds of an unlawful activity or that any
monetary instrument or property is required
under the AMLA to be disclosed and filed
with the AMLC, may be established by
direct evidence or inferred from the
attendant circumstances.
Rule 6.6. All the elements of every money
laundering offense under Section 4 of the
AMLA must be proved by evidence beyond
reasonable doubt, including the element of
knowledge that the monetary instrument or
property represents, involves or relates to
the proceeds of any unlawful activity.
Rule 6.7. No element of the unlawful
activity, however, including the identity of
the perpetrators and the details of the actual
commission of the unlawful activity need

be established by proof beyond reasonable
doubt. The elements of the offense of money
laundering are separate and distinct from
the elements of the felony or offense
constituting the unlawful activity.
RULE 7 CREATION OF ANTI-MONEY
LAUNDERING COUNCIL (AMLC)
Rule 7.1.a. Composition. - The Anti-Money
Laundering Council is hereby created and shall
be composed of the Governor of the BSP as
Chairman, the Commissioner of the Insurance
Commission and the Chairman of the Securities
and Exchange Commission as members.
Rule 7.1.b. Unanimous Decision. - The
AMLC shall act unanimously in discharging
its functions as defined in the AMLA and in
these Rules. However, in the case of the
incapacity, absence or disability of any
member to discharge his functions, the
officer duly designated or authorized to
discharge the functions of the Governor of
the BSP, the Chairman of the SEC or the
Insurance Commissioner, as the case may
be, shall act in his stead in the AMLC.
Rule 7.2. Functions. - The functions of the
AMLC are defined hereunder:
(1) to require and receive covered or
suspicious transaction reports from covered
institutions;
(2) to issue orders addressed to the
appropriate Supervising Authority or the
covered institution to determine the true
identity of the owner of any monetary
instrument or property subject of a covered
or suspicious transaction report, or request
for assistance from a foreign State, or
believed by the Council, on the basis of
substantial evidence, to be, in whole or in
part, wherever located, representing,
involving, or related to, directly or
indirectly, in any manner or by any means,
the proceeds of an unlawful activity;
APP. 52
05.12.31
(3) to institute civil forfeiture

proceedings and all other remedial
proceedings through the Office of the
Solicitor General;
(4) to cause the filing of complaints
with the Department of Justice or the
Ombudsman for the prosecution of money
laundering offenses;
(5) to
investigate
suspicious
transactions and covered transactions
deemed suspicious after an investigation by
the AMLC, money laundering activities and
other violations of this Act;
(6) to apply before the Court of
Appeals, Ex-Parte, for the freezing of any
monetary instrument or property alleged to
be proceeds of any unlawful activity as
defined under Section 3(i) hereof;
(7) to implement such measures as may
be inherent, necessary, implied, incidental
and justified under the AMLA to counteract
money laundering. Subject to such
limitations as provided for by law, the
AMLC is authorized under Rule 7 (7) of the
AMLA to establish an information sharing
system that will enable the AMLC to store,
track and analyze money laundering
transactions for the resolute prevention,
detection and investigation of money
laundering offenses. For this purpose, the
AMLC shall install a computerized system
that will be used in the creation and
maintenance of an information database;
(8) to receive and take action in respect
of any request from foreign states for
assistance in their own anti-money
laundering operations as provided in the
AMLA. The AMLC is authorized under
Sections 7 (8) and 13 (b) and (d) of the AMLA
to receive and take action in respect of any
request of foreign states for assistance in
their own anti-money laundering
operations, in respect of conventions,
resolutions and other directives of the
United Nations (UN), the UN Security
Council, and other international
organizations of which the Philippines is a
member. However, the AMLC may refuse

to comply with any such request,
convention, resolution or directive
where the action sought therein
contravenes the provisions of the
Constitution, or the execution thereof is
likely to prejudice the national interest
of the Philippines.
(9) to develop educational programs
on the pernicious effects of money
laundering, the methods and techniques
used in money laundering, the viable
means of preventing money laundering
and the effective ways of prosecuting and
punishing offenders.
(10) to enlist the assistance of any
branch, department, bureau, office, agency
or instrumentality of the government,
including government-owned and controlled corporations, in undertaking
any and all anti-money laundering
operations, which may include the use of
its personnel, facilities and resources for
the more resolute prevention, detection
and investigation of money laundering
offenses and prosecution of offenders. The
AMLC may require the intelligence units
of the Armed Forces of the Philippines, the
Philippine National Police, the
Department of Finance, the Department of
Justice, as well as their attached agencies,
and other domestic or transnational
governmental or non-governmental
organizations or groups to divulge to the
AMLC all information that may, in any
way, facilitate the resolute prevention,
investigation and prosecution of money
laundering offenses and other violations of
the AMLA.
(11) To impose administrative
sanctions for the violation of laws, rules,
regulations and orders and resolutions
issued pursuant thereto.
Rule 7.3. Meetings. - The AMLC shall meet
every first Monday of the month, or as often as
may be necessary at the call of the Chairman.
APP. 52
05.12.31
RULE 8 CREATION OF A SECRETARIAT

Rule 8.1. The Executive Director. - The
Secretariat shall be headed by an
Executive Director who shall be
appointed by the AMLC for a term of five
(5) years. He must be a member of the
Philippine Bar, at least thirty-five (35)
years of age, must have served at least
five (5) years either at the BSP, the SEC or
the IC and of good moral character,
unquestionable integrity and known
probity. He shall be considered a regular
employee of the BSP with the rank of
Assistant Governor, and shall be entitled
to such benefits and subject to such rules
and regulations, as well as prohibitions,
as are applicable to officers of similar
rank.
Rule 8.2. Composition. - In organizing the
Secretariat, the AMLC may choose from
those who have served, continuously or
cumulatively, for at least five (5) years in
the BSP, the SEC or the IC. All members
of the Secretariat shall be considered
regular employees of the BSP and shall
be entitled to such benefits and subject
to such rules and regulations as are
applicable to BSP employees of similar
rank.
Rule 8.3. Detail and Secondment. - The
AMLC is authorized under Section 7 (10)
of the AMLA to enlist the assistance of
the BSP, the SEC or the IC, or any other
branch, department, bureau, office,
agency or instrumentality of the
government, including governmentowned and controlled corporations, in
undertaking any and all anti-money
laundering operations. This includes the
use of any member of their personnel who
may be detailed or seconded to the
AMLC, subject to existing laws and Civil
Service Rules and Regulations. Detailed
personnel shall continue to receive their
salaries, benefits and emoluments from

their respective mother units. Seconded
personnel shall receive, in lieu of their
respective compensation packages from
their respective mother units, the salaries,
emoluments and all other benefits to
which their AMLC Secretariat positions
are entitled to.
Rule 8.4. Confidentiality Provisions. - The
members of the AMLC, the Executive
Director, and all the members of the
Secretariat, whether permanent, on detail
or on secondment, shall not reveal, in any
manner, any information known to them
by reason of their office. This prohibition
shall apply even after their separation
from the AMLA. In case of violation of this
provision, the person shall be punished
in accordance with the pertinent
provisions of the Central Bank Act.
RULE 9 PREVENTION OF MONEY
LAUNDERING; CUSTOMER
IDENTIFICATION REQUIREMENTS AND
RECORD KEEPING
Rule 9.1. Customer Identification
Requirements
Rule 9.1.a. Customer Identification. Covered institutions shall establish and
record the true identity of its clients based
on official documents. They shall
maintain a system of verifying the true
identity of their clients and, in case of
corporate clients, require a system of
verifying their legal existence and
organizational structure, as well as the
authority and identification of all persons
purporting to act on their behalf. Covered
institutions shall establish appropriate
systems and methods based on
internationally compliant standards and
adequate internal controls for verifying
and recording the true and full identity of
their customers.
APP. 52
05.12.31
Rule 9.1.b. Trustee, Nominee and Agent

Accounts. - When dealing with customers
who are acting as trustee, nominee, agent
or in any capacity for and on behalf of
another, covered institutions shall verify
and record the true and full identity of the
person(s) on whose behalf a transaction
is being conducted. Covered institutions
shall also establish and record the true and
full identity of such trustees, nominees,
agents and other persons and the nature
of their capacity and duties. In case a
covered institution has doubts as to
whether such persons are being used as
dummies in circumvention of existing
laws, it shall immediately make the
necessary inquiries to verify the status of
the business relationship between the
parties.
Rule 9.1.c. Minimum Information/
Documents Required for Individual
Customers. - Covered institutions shall
require customers to produce original
documents of identity issued by an official
authority, bearing a photograph of the
customer. Examples of such documents are
identity cards and passports. The following
minimum information/documents shall be
obtained from individual customers:
(1) Name;
(2) Present address;
(3) Permanent address;
(4) Date and place of birth;
(5) Nationality;
(6) Nature of work and name of
employer or nature of self-employment/
business;
(7) Contact numbers;
(8) Tax identification number, Social
Security System number or Government
Service and Insurance System number;
(9) Specimen signature;
(10) Source of fund(s); and
(11) Names of beneficiaries in case of
insurance contracts and whenever
applicable.
Rule 9.1.d. Minimum Information/

Documents Required for Corporate and
Juridical Entities. - Before establishing
business relationships, covered
institutions shall endeavor to ensure that
the customer is a corporate or juridical
entity which has not been or is not in
the process of being, dissolved, wound
up or voided, or that its business or
operations has not been or is not in the
process of being, closed, shut down,
phased out, or terminated. Dealings with
shell companies and corporations, being
legal entities which have no business
substance in their own right but through
which financial transactions may be
conducted, should be undertaken with
extreme caution. The following
minimum information/documents shall
be obtained from customers that are
corporate or juridical entities, including
shell companies and corporations:
(1) Articles of Incorporation/
Partnership;
(2) By-laws;
(3) Official address or principal
business address;
(4) List of directors/partners;
(5) List of principal stockholders
owning at least two percent (2%) of the
capital stock;
(6) Contact numbers;
(7) Beneficial owners, if any; and
(8) Verification of the authority and
identification of the person purporting to
act on behalf of the client.
Rule 9.1.e. Prohibition Against
Certain Accounts. Covered institutions
shall maintain accounts only in the true
and full name of the account owner or
holder. The provisions of existing laws
to the contrary notwithstanding,
anonymous accounts, accounts under
fictitious names, and all other similar
accounts shall be absolutely
prohibited.
APP. 52
05.12.31
Rule 9.1.f. Prohibition Against Opening of

Accounts Without Face-to-face Contact. No new accounts shall be opened and
created without face-to-face contact and full
compliance with the requirements under
Rule 9.1.c of these Rules.
Rule 9.1.g. Numbered Accounts. - Peso and
foreign currency non-checking numbered
accounts shall be allowed: Provided, That the
true identity of the customers of all peso and
foreign currency non-checking numbered
accounts are satisfactorily established based
on official and other reliable documents and
records, and that the information and
documents required under the provisions of
these Rules are obtained and recorded by the
covered institution. No peso and foreign
currency non-checking accounts shall be
allowed without the establishment of such
identity and in the manner herein provided.
The BSP may conduct annual testing for the
purpose of determining the existence and true
identity of the owners of such accounts. The
SEC and the IC may conduct similar testing
more often than once a year and covering
such other related purposes as may be
allowed under their respective charters.
Rule 9.2. Record Keeping Requirements
Rule 9.2.a. Record Keeping: Kinds of
Records and Period for Retention. All
records of all transactions of covered
institutions shall be maintained and safely
stored for five (5) years from the dates of
transactions. Said records and files shall
contain the full and true identity of the
owners or holders of the accounts involved
in the covered transactions and all other
customer identification documents.
Covered institutions shall undertake the
necessary adequate security measures to
ensure the confidentiality of such file.
Covered institutions shall prepare and
maintain documentation, in accordance
with the aforementioned client
identification requirements, on their

customer accounts, relationships and
transactions such that any account,
relationship or transaction can be so
reconstructed as to enable the AMLC, and/
or the courts to establish an audit trail for
money laundering.
Rule 9.2.b. Existing and New Accounts and
New Transactions. - All records of existing
and new accounts and of new transactions
shall be maintained and safely stored for five
(5) years from 17 October 2001 or from the
dates of the accounts or transactions,
whichever is later.
Rule 9.2.c. Closed Accounts. - With respect
to closed accounts, the records on customer
identification, account files and business
correspondence shall be preserved and
safely stored for at least five (5) years from
the dates when they were closed.
Rule 9.2.d. Retention of Records in Case a
Money Laundering Case has been Filed in
Court. If a money laundering case based
on any record kept by the covered institution
concerned has been filed in court, said file
must be retained beyond the period stipulated
in the three (3) immediately preceding subRules, as the case may be, until it is confirmed
that the case has been finally resolved or
terminated by the court.
Rule 9.2.e. Form of Records. Records
shall be retained as originals in such forms
as are admissible in court pursuant to
existing laws and the applicable rules
promulgated by the Supreme Court.
Rule 9.3. Reporting
Transactions. -
of
Covered
Rule 9.3.a. Period of Reporting Covered

Transactions and SuspiciousTransactions.
- Covered institutions shall report to the
AMLC all covered transactions and
APP. 52
05.12.31
suspicious transactions within five (5)

working days from occurrence thereof,
unless the supervising authority concerned
prescribes a longer period not exceeding
ten (10) working days.
Should a transaction be determined to
be both a covered and a suspicious
transaction, the covered institution shall
report the same as a suspicious
transaction.
The reporting of covered transactions
by covered institutions shall be deferred
for a period of sixty (60) days after the
effectivity of R.A. No. 9194, or as may be
determined by the AMLC, in order to
allow the covered institutions to configure
their respective computer systems;
provided that, all covered transactions
during said deferment period shall be
submitted thereafter.
Rule 9.3.b. Covered and Suspicious
Transaction Report Forms. - The Covered
Transaction Report (CTR) and the Suspicious
Transaction Report (STR) shall be in the
forms prescribed by the AMLC.
Rule 9.3.b.1. Covered institutions shall
use the existing forms for Covered
Transaction Reports and Suspicious
Transaction Reports, until such time as the
AMLC has issued new sets of forms.
Rule 9.3.b.2. Covered Transaction
Reports and Suspicious Transaction
Reports shall be submitted in a secured
manner to the AMLC in electronic form,
either via diskettes, leased lines, or
through internet facilities, with the
corresponding hard copy for suspicious
transactions. The final flow and
procedures for such reporting shall be
mapped out in the manual of operations
to be issued by the AMLC.
Rule 9.3.c. Exemption from Bank Secrecy
Laws. When reporting covered or
suspicious transactions to the AMLC,

covered institutions and their officers and
employees, shall not be deemed to have
violated R.A. No. 1405, as amended, R.A.
No. 6426, as amended, R.A. No. 8791 and
other similar laws, but are prohibited from
communicating, directly or indirectly, in
any manner or by any means, to any person
the fact that a covered or suspicious
transaction report was made, the contents
thereof, or any other information in relation
thereto. In case of violation thereof, the
concerned officer and employee of the
covered institution, shall be criminally
liable.
Rule 9.3.d. Confidentiality Provisions.
When reporting covered transactions or
suspicious transactions to the AMLC,
covered institutions and their officers,
employees, representatives, agents,
advisors, consultants or associates are
prohibited from communicating, directly or
indirectly, in any manner or by any means,
to any person, entity, or the media, the fact
that a covered transaction report was made,
the contents thereof, or any other
information in relation thereto. Neither may
such reporting be published or aired in any
manner or form by the mass media,
electronic mail, or other similar devices. In
case of violation hereof, the concerned
officer, employee, representative, agent,
advisor, consultant or associate of the
covered institution, or media shall be held
criminally liable.
Rule 9.3.e. Safe Harbor Provisions. No
administrative, criminal or civil
proceedings, shall lie against any person
for having made a covered transaction
report or a suspicious transaction report
in the regular performance of his duties
and in good faith, whether or not such
reporting results in any criminal
prosecution under this Act or any other
Philippine law.
APP. 52
05.12.31
RULE 10 APPLICATION FOR FREEZE

ORDERS
Rule 10.1. When the AMLC May Apply
for the Freezing of Any Monetary
Instrument or Property. (a) After an investigation conducted by
the AMLC and upon determination that
probable cause exists that a monetary
instrument or property is in any way related
to any unlawful activity as defined under
Section 3 (i), the AMLC may file an Ex-Parte
application before the Court of Appeals for
the issuance of a freeze order on any
monetary instrument or property subject
thereof prior to the institution or in the
course of, the criminal proceedings
involving the unlawful activity to which said
monetary instrument or property is any way
related.
(b) Considering the intricate and
diverse web of related and interlocking
accounts pertaining to the monetary
instrument(s) or property(ies) that any
person may create in the different covered
institutions, their branches and/or other
units, the AMLC may apply to the Court of
Appeals for the freezing, not only of the
monetary instruments or properties in the
names of the reported owner(s)/holder(s),
and monetary instruments or properties
named in the application of the AMLC but
also all other related web of accounts
pertaining to other monetary instruments
and properties, the funds and sources of
which originated from or are related to the
monetary instrument(s) or property(ies)
subject of the freeze order(s).
(c) The freeze order shall be effective for
twenty (20) days unless extended by the Court
of Appeals upon application by the AMLC.
Rule 10.2. Definition of Probable Cause.
- Probable cause includes such facts and
circumstances which would lead a
reasonably discreet, prudent or cautious
man to believe that an unlawful activity
and/or a money laundering offense is about

to be, is being or has been committed and
that the account or any monetary instrument
or property subject thereof sought to be
frozen is in any way related to said unlawful
activity and/or money laundering offense.
Rule 10.3. Duty of Covered Institution
Upon Receipt Thereof.
Rule 10.3.a. Upon receipt of the notice of
the freeze order, the covered institution
concerned shall immediately freeze the
monetary instrument or property and related
web of accounts subject thereof.
Rule 10.3.b. The covered institution shall
likewise immediately furnish a copy of the
notice of the freeze order upon the owner
or holder of the monetary instrument or
property or related web of accounts subject
thereof.
Rule 10.3.c. Within twenty-four (24) hours
from receipt of the freeze order, the
covered institution concerned shall
submit to the Court of Appeals and the
AMLC, by personal delivery, a detailed
written return on the freeze order,
specifying all the pertinent and relevant
information which shall include the
following:
1. The account number(s);
2. The name(s) of the account owner(s)
or holder(s);
3. The amount of the monetary
instrument, property or related web of
accounts as of the time they were frozen;
4. All relevant information as to the
nature of the monetary instrument or
property;
5. Any information on the related web
of accounts pertaining to the monetary
instrument or property subject of the freeze
order; and
6. The time when the freeze thereon
took effect.
APP. 52
05.12.31
Rule 10.4. Definition of Related Web of

Accounts. Related Web of Accounts pertaining
to the money instrument or property
subject of the freeze order is defined as
those accounts, the funds and sources of
which originated from and/or are
materially linked to the monetary
instrument(s) or property(ies) subject of
the freeze order(s).
Upon receipt of the freeze order
issued by the court of appeals and upon
verification by the covered institution
that the related web of accounts
originated from and/or are materially
linked to the monetary instrument or
property subject of the freeze order, the
covered institution shall freeze these
related web of accounts wherever these
funds may be found.
The return of the covered institution
as required under rule 10.3.c shall include
the fact of such freezing and an explanation
as to the grounds for the identification of
the related web of accounts.
Rule 10.5. Extension of the Freeze Order.
- Before the twenty (20) day period of the
freeze order issued by the court of appeals
expires, the AMLC may apply in the same
court for an extension of said period. Upon
the timely filing of such application and
pending the decision of the Court of
Appeals to extend the period, said period
shall be deemed suspended and the freeze
order shall remain effective.
However, the covered institution shall
not lift the effects of the freeze order
without securing official confirmation from
the AMLC.
Rule 10.6. Prohibition Against Issuance of
Freeze Orders Against Candidates for an
Electoral Office During Election Period. No assets shall be frozen to the prejudice
of a candidate for an electoral office during
an election period.
RULE 11 AUTHORITY TO INQUIRE

INTO BANK DEPOSITS
Rule 11.1. Authority to Inquire into Bank
Deposits with Court Order. Notwithstanding the provisions of R.A. No.
1405, as amended; R.A. No. 6426, as
amended; R.A. No. 8791, and other laws, the
AMLC may inquire into or examine any
particular deposit or investment with any
banking institution or non-bank financial
institution and their subsidiaries and affiliates
upon order of any competent court in cases
of violation of this Act, when it has been
established that there is probable cause that
the deposits or investments involved are
related to an unlawful activity as defined in
Section 3 (i) hereof or a money laundering
offense under Section 4 hereof; except in
cases as provided under Rule 11.2.
Rule 11.2. Authority to Inquire into Bank
Deposits Without Court Order. - The
AMLC may inquire into or examine deposit
and investments with any banking
institution or non-bank financial institution
and their subsidiaries and affiliates without
a Court Order where any of the following
unlawful activities are involved:
(a) Kidnapping for ransom under Article
267 of Act No. 3815, otherwise known as
the Revised Penal Code, as amended;
(b) Sections 4,5,6, 8, 9, 10, 12, 13, 14,
15 and 16 of R.A. No. 9165, otherwise
known as the Comprehensive Dangerous
Drugs Act of 2002;
(c) Hijacking and other violations under
R.A. No. 6235; destructive arson and
murder, as defined under the Revised Penal
Code, as amended, including those
perpetrated by terrorists against
noncombatant persons and similar targets.
Rule 11.2.a. Procedure For Examination
Without A Court Order. - Where any of
the unlawful activities enumerated under
the immediately preceding Rule 11.2 are
APP. 52
05.12.31
involved, and there is probable cause that

the deposits or investments with any
banking or non-banking financial
institution and their subsidiaries and
affiliates are in anyway related to these
unlawful activities the AMLC shall issue a
resolution authorizing the inquiry into or
examination of any deposit or investment
with such banking or non-banking
financial institution and their subsidiaries
and affiliates concerned.
Rule 11.2.b. Duty of the banking
institution or non- banking institution
upon receipt of the AMLC Resolution. The banking institution or the non-banking
financial institution and their subsidiaries
and affiliates shall, immediately upon
receipt of the AMLC Resolution, allow the
AMLC
and/or
its
authorized
representative(s) full access to all records
pertaining to the deposit or investment
account.
Rule 11.3. - BSP Authority to Examine
deposits and investments; Additional
Exception to the Bank Secrecy Act. - To
ensure compliance with this act, the BSP
may inquire into or examine any particular
deposit or investment with any banking
institution or non-bank financial institution
and their subsidiaries and affiliates when
the examination is made in the course of a
periodic or special examination, in
accordance with the rules of examination
of the BSP.
Rule 11.3.a. BSP Rules of Examination. The BSP shall promulgate its rules of
examination for ensuring compliance by
banks and non-bank financial institutions
and their subsidiaries and affiliates with the
AMLA and these rules.
Any findings of the BSP which may
constitute a violation of any provision of
this act shall be transmitted to the AMLC
for appropriate action.
RULE 12 FORFEITURE PROVISIONS

Rule 12.1. Authority to Institute Civil
Forfeiture Proceedings. The AMLC is
authorized under Section 7 (3) of the AMLA
to institute civil forfeiture proceedings and
all other remedial proceedings through the
Office of the Solicitor General.
Rule 12.2. When Civil Forfeiture May be
Applied. When there is a Suspicious
Transaction Report or a Covered
Transaction Report deemed suspicious after
investigation by the AMLC, and the court
has, in a petition filed for the purpose,
ordered the seizure of any monetary
instrument or property, in whole or in part,
directly or indirectly, related to said report,
the Revised Rules of Court on civil forfeiture
shall apply.
Rule 12.3. Claim on Forfeited Assets. Where the court has issued an order of
forfeiture of the monetary instrument or
property in a criminal prosecution for any
money laundering offense under Section 4
of the AMLA, the offender or any other
person claiming an interest therein may
apply, by verified petition, for a declaration
that the same legitimately belongs to him,
and for segregation or exclusion of the
monetary instrument or property
corresponding thereto. The verified petition
shall be filed with the court which rendered
the judgment of conviction and order of
forfeiture within fifteen (15) days from the
date of the order of forfeiture, in default of
which the said order shall become final and
executory. This provision shall apply in both
civil and criminal forfeiture.
Rule 12.4. Payment in Lieu of Forfeiture. Where the court has issued an order of
forfeiture of the monetary instrument or
property subject of a money laundering
offense under Section 4 of the AMLA, and
said order cannot be enforced because any
APP. 52
05.12.31
particular monetary instrument or property

cannot, with due diligence, be located, or
it has been substantially altered, destroyed,
diminished in value or otherwise rendered
worthless by any act or omission, directly
or indirectly, attributable to the offender,
or it has been concealed, removed,
converted or otherwise transferred to
prevent the same from being found or to
avoid forfeiture thereof, or it is located
outside the Philippines or has been placed
or brought outside the jurisdiction of the
court, or it has been commingled with other
monetary instruments or property belonging
to either the offender himself or a third
person or entity, thereby rendering the same
difficult to identify or be segregated for
purposes of forfeiture, the court may, instead
of enforcing the order of forfeiture of the
monetary instrument or property or part
thereof or interest therein, accordingly order
the convicted offender to pay an amount
equal to the value of said monetary
instrument or property. This provision shall
apply in both civil and criminal forfeiture.
RULE 13 MUTUAL ASSISTANCE
AMONG STATES
Rule 13.1. Request for Assistance from a
Foreign State. - Where a foreign state makes
a request for assistance in the investigation
or prosecution of a money laundering
offense, the AMLC may execute the request
or refuse to execute the same and inform
the foreign state of any valid reason for not
executing the request or for delaying the
execution thereof. The principles of
mutuality and reciprocity shall, for this
purpose, be at all times recognized.
Rule 13.2. Powers of the AMLC to Act on
a Request for Assistance from a Foreign
State. - The AMLC may execute a request
for assistance from a foreign state by: (1)
tracking down, freezing, restraining and
seizing assets alleged to be proceeds of any
unlawful activity under the procedures laid

down in the AMLA and in these Rules; (2)
giving information needed by the foreign
state within the procedures laid down in
the AMLA and in these Rules; and (3)
applying for an order of forfeiture of any
monetary instrument or property in the
court: Provided, That the court shall not
issue such an order unless the application
is accompanied by an authenticated copy
of the order of a court in the requesting state
ordering the forfeiture of said monetary
instrument or property of a person who has
been convicted of a money laundering
offense in the requesting state, and a
certification or an affidavit of a competent
officer of the requesting state stating that
the conviction and the order of forfeiture
are final and that no further appeal lies in
respect of either.
Rule 13.3. Obtaining Assistance from
Foreign States. - The AMLC may make a
request to any foreign state for assistance
in (1) tracking down, freezing, restraining
and seizing assets alleged to be proceeds
of any unlawful activity; (2) obtaining
information that it needs relating to any
covered transaction, money laundering
offense or any other matter directly or
indirectly related thereto; (3) to the extent
allowed by the law of the foreign state,
applying with the proper court therein for
an order to enter any premises belonging
to or in the possession or control of, any or
all of the persons named in said request,
and/or search any or all such persons
named therein and/or remove any
document, material or object named in said
request: Provided, That the documents
accompanying the request in support of the
application have been duly authenticated
in accordance with the applicable law or
regulation of the foreign state; and (4)
applying for an order of forfeiture of any
monetary instrument or property in the
proper court in the foreign state: Provided,
APP. 52
05.12.31
That the request is accompanied by an

authenticated copy of the order of the
Regional Trial Court ordering the
forfeiture of said monetary instrument or
property of a convicted offender and an
affidavit of the clerk of court stating that
the conviction and the order of forfeiture
are final and that no further appeal lies in
respect of either.
Rule 13.4. Limitations on Requests for
Mutual Assistance. - The AMLC may refuse
to comply with any request for assistance
where the action sought by the request
contravenes any provision of the
Constitution or the execution of a request
is likely to prejudice the national interest
of the Philippines, unless there is a treaty
between the Philippines and the
requesting state relating to the provision
of assistance in relation to money
laundering offenses.
Rule 13.5. Requirements for Requests for
Mutual Assistance from Foreign States. A request for mutual assistance from a
foreign state must (1) confirm that an
investigation or prosecution is being
conducted in respect of a money
launderer named therein or that he has
been convicted of any money laundering
offense; (2) state the grounds on which
any person is being investigated or
prosecuted for money laundering or the
details of his conviction; (3) give sufficient
particulars as to the identity of said
person; (4) give particulars sufficient to
identify any covered institution believed
to have any information, document,
material or object which may be of
assistance to the investigation or
prosecution; (5) ask from the covered
institution concerned any information,
document, material or object which may
be of assistance to the investigation or
prosecution; (6) specify the manner in
which and to whom said information,
document, material or object obtained

pursuant to said request, is to be
produced; (7) give all the particulars
necessary for the issuance by the court in
the requested state of the writs, orders or
processes needed by the requesting state;
and (8) contain such other information as
may assist in the execution of the request.
Rule 13.6. Authentication of Documents.
- For purposes of Section 13 (f) of the AMLA
and Section 7 of the AMLA, a document is
authenticated if the same is signed or
certified by a judge, magistrate or equivalent
officer in or of, the requesting state, and
authenticated by the oath or affirmation of
a witness or sealed with an official or public
seal of a minister, secretary of state, or officer
in or of, the government of the requesting
state, or of the person administering the
government or a department of the
requesting territory, protectorate or colony.
The certificate of authentication may also
be made by a secretary of the embassy or
legation, consul general, consul, vice
consul, consular agent or any officer in the
foreign service of the Philippines stationed
in the foreign state in which the record is
kept, and authenticated by the seal of his
office.
Rule 13.7. Suppletory Application of the
Revised Rules of Court.
Rule 13.7.1. For attachment of Philippine
properties in the name of persons
convicted of any unlawful activity as
defined in Section 3 (i) of the AMLA,
execution and satisfaction of final
judgments of forfeiture, application for
examination of witnesses, procuring
search warrants, production of bank
documents and other materials and all
other actions not specified in the AMLA
and these Rules, and assistance for any of
the aforementioned actions, which is
subject of a request by a foreign state,
APP. 52
05.12.31
resort may be had to the proceedings

pertinent thereto under the Revised Rules
of Court.
Rule 13.7.2. Authority to Assist the United
Nations and other International
Organizations and Foreign States. The
AMLC is authorized under Section 7 (8)
and 13 (b) and (d) of the AMLA to receive
and take action in respect of any request
of foreign states for assistance in their own
anti-money laundering operations. It is
also authorized under Section 7 (7) of the
AMLA to cooperate with the National
Government and/or take appropriate
action in respect of conventions,
resolutions and other directives of the
United Nations (UN), the UN Security
Council, and other international
organizations of which the Philippines is
a member. However, the AMLC may
refuse to comply with any such request,
convention, resolution or directive where
the action sought therein contravenes the
provision of the Constitution or the
execution thereof is likely to prejudice the
national interest of the Philippines.
Rule 13.8. Extradition. The Philippines
shall negotiate for the inclusion of money
laundering offenses as defined under
Section 4 of the AMLA among the
extraditable offenses in all future treaties.
With respect, however, to the state parties
that are signatories to the United Nations
Convention Against Transnational
Organized Crime that was ratified by the
Philippine Senate on 22 October 2001,
money laundering is deemed to be
included as an extraditable offense in any
extradition treaty existing between said
state parties, and the Philippines shall
include money laundering as an
extraditable offense in every extradition
treaty that may be concluded between the
Philippines and any of said state parties
in the future.
RULE 14 PENAL PROVISIONS

Rule 14.1. Penalties for the Crime of
Money Laundering.
Rule 14.1.a. Penalties under Section 4 (a)
of the AMLA. - The penalty of imprisonment
ranging from seven (7) to fourteen (14) years
and a fine of not less than Php3.0 Million
but not more than twice the value of the
monetary instrument or property involved
in the offense, shall be imposed upon a
person convicted under Section 4 (a) of the
AMLA.
Rule 14.1.b. Penalties under Section 4 (b)
from four (4) to seven (7) years and a fine
of not less than Php1.5 Million but not more
than Php3.0 Million, shall be imposed upon
a person convicted under Section 4 (b) of
the AMLA.
Rule 14.1.c. Penalties under Section 4 (c)
from six (6) months to four (4) years or a
fine of not less than Php100,000.00 but not
more than Php500,000.00, or both, shall
be imposed on a person convicted under
Section 4(c) of the AMLA.
Rule 14.1.d. Administrative Sanctions. - (1)
After due notice and hearing, the AMLC shall,
at its discretion, impose fines upon any
covered institution, its officers and employees,
or any person who violates any of the
provisions of R.A. No. 9160, as amended by
R.A. No. 9194 and rules, regulations, orders
and resolutions issued pursuant thereto. The
fines shall be in amounts as may be
determined by the council, taking into
consideration all the attendant circumstances,
such as the nature and gravity of the violation
or irregularity, but in no case shall such fines
be less than Php100,000.00 but not to exceed
Php500,000.00. The imposition of the
administrative sanctions shall be without
APP. 52
05.12.31
prejudice to the filing of criminal charges

against the persons responsible for the
violations.
Rule 14.2. Penalties for Failure to Keep
Records - The penalty of imprisonment
from six (6) months to one (1) year or a fine
of not less than Php100,000.00 but not
more than Php500,000.00, or both, shall
be imposed on a person convicted under
Section 9 (b) of the AMLA.
Rule 14.3. Penalties for Malicious
Reporting. - Any person who, with malice,
or in bad faith, reports or files a completely
unwarranted or false information relative
to money laundering transaction against
any person shall be subject to a penalty of
six (6) months to four (4) years
imprisonment and a fine of not less than
Php100,000.00 but not more than
Php500,000.00, at the discretion of the
court: Provided, That the offender is not
entitled to avail the benefits of the Probation
Law.
Rule 14.4. Where Offender is a Juridical
Person. - If the offender is a corporation,
association, partnership or any juridical
person, the penalty shall be imposed upon
the responsible officers, as the case may be,
who participated in, or allowed by their
gross negligence the commission of the
crime. If the offender is a juridical person,
the court may suspend or revoke its license.
If the offender is an alien, he shall, in
addition to the penalties herein prescribed,
be deported without further proceedings
after serving the penalties herein prescribed.
If the offender is a public official or
employee, he shall, in addition to the
penalties prescribed herein, suffer perpetual
or temporary absolute disqualification from
office, as the case may be.
Rule 14.5. Refusal by a Public Official or
Employee to Testify. - Any public official
or employee who is called upon to testify

and refuses to do the same or purposely fails
to testify shall suffer the same penalties
prescribed herein.
Rule 14.6. Penalties for Breach of
Confidentiality. The punishment of
imprisonment ranging from three (3) to
eight (8) years and a fine of not less than
Php500,000.00 but not more than Php1.0
Million, shall be imposed on a person
convicted for a violation under Section
9(c). In case of a breach of confidentiality
that is published or reported by media,
the responsible reporter, writer, president,
publisher, manager and editor-in-chief
shall be liable under this act.
RULE 15 PROHIBITIONS AGAINST
POLITICAL HARASSMENT
Rule 15.1. Prohibition against Political
Persecution. - The AMLA and these Rules
shall not be used for political persecution
or harassment or as an instrument to
hamper competition in trade and
commerce. No case for money laundering
may be filed to the prejudice of a
candidate for an electoral office during an
election period.
Rule 15.2. Provisional
Application; Exception.
Remedies
Rule 15.2.a. - The AMLC may apply, in

the course of the criminal proceedings,
for provisional remedies to prevent the
monetary instrument or property subject
thereof from being removed, concealed,
converted, commingled with other
property or otherwise to prevent its being
found or taken by the applicant or
otherwise placed or taken beyond the
jurisdiction of the court. However, no
assets shall be attached to the prejudice
of a candidate for an electoral office
during an election period.
APP. 52
05.12.31
Rule 15.2.b. - Where there is conviction for

money laundering under Section 4 of the
AMLA, the court shall issue a judgment of
forfeiture in favor of the Government of the
Philippines with respect to the monetary
instrument or property found to be proceeds
of one or more unlawful activities.
However, no assets shall be forfeited to the
prejudice of a candidate for an electoral
office during an election period.
RULE 16 RESTITUTION
Rule 16. Restitution. - Restitution for any
aggrieved party shall be governed by the
provisions of the New Civil Code.
RULE 17 IMPLEMENTING RULES AND
REGULATIONS AND MONEY
LAUNDERING PREVENTION
PROGRAMS
Rule 17.1. Implementing Rules and
Regulations.
(a) Within thirty (30) days from the
effectivity of R.A. No. 9160, as amended
by R.A. No. 9194, the BSP, the Insurance
Commission and the Securities and
Exchange Commission shall promulgate the
Implementing Rules and Regulations of the
AMLA, which shall be submitted to the
Congressional Oversight Committee for
approval.
(b) The Supervising Authorities, the BSP,
the SEC and the IC shall, under their own
respective charters and regulatory authority,
issue their Guidelines and Circulars on antimoney laundering to effectively implement
the provisions of R.A. No. 9160, as
amended by R.A. No. 9194.
Rule 17.2. Money Laundering Prevention
Programs.
Rule 17.2.a. Covered institutions shall
formulate their respective money
laundering prevention programs in
accordance with Section 9 and other

pertinent provisions of the AMLA and these
Rules, including, but not limited to,
information dissemination on money
laundering activities and their prevention,
detection and reporting, and the training
of responsible officers and personnel of
covered institutions, subject to such
guidelines as may be prescribed by their
respective supervising authority. Every
covered institution shall submit its own
money laundering program to the
supervising authority concerned within
the non-extendible period that the
supervising authority has imposed in the
exercise of its regulatory powers under
its own charter.
Rule 17.2.b. Every money laundering
program shall establish detailed procedures
implementing a comprehensive, institutionwide know-your-client policy, set-up an
effective dissemination of information on
money laundering activities and their
prevention, detection and reporting, adopt
internal policies, procedures and controls,
designate compliance officers at
management level, institute adequate
screening and recruitment procedures, and
set-up an audit function to test the system.
Rule 17.2.c. Covered institutions shall adopt,
as part of their money laundering programs,
a system of flagging and monitoring
transactions that qualify as suspicious
transactions, regardless of amount or covered
transactions involving amounts below the
threshold to facilitate the process of
aggregating them for purposes of future
reporting of such transactions to the AMLC
when their aggregated amounts breach the
threshold. All covered institutions, including
banks insofar as non-deposit and nongovernment bond investment transactions are
concerned, shall incorporate in their money
laundering programs the provisions of these
Rules and such other guidelines for reporting
APP. 52
05.12.31
to the AMLC of all transactions that engender

the reasonable belief that a money laundering
offense is about to be, is being, or has been
committed.
the Anti-Money Laundering Council within

thirty (30) days from the promulgation of
the said rules.
Rule 17.3. Training of Personnel. - Covered

institutions shall provide all their responsible
officers and personnel with efficient and
effective training and continuing education
programs to enable them to fully comply with
all their obligations under the AMLA and
these Rules.
RULE 19 APPROPRIATIONS FOR AND

BUDGET OF THE AMLC
Rule 17.4. Amendments. - These Rules or

any portion thereof may be amended by
unanimous vote of the members of the
AMLC and submitted to the Congressional
Oversight Committee as provided for under
Section 19 of R.A. No. 9160, as amended
by R.A. No. 9194.
RULE 18 CONGRESSIONAL
OVERSIGHT COMMITTEE
Rule 18.1. Composition of Congressional
Oversight Committee. - There is hereby
created a Congressional Oversight Committee
composed of seven (7) members from the
Senate and seven (7) members from the
House of Representatives. The members from
the Senate shall be appointed by the Senate
President based on the proportional
representation of the parties or coalitions
therein with at least two (2) Senators
representing the minority. The members from
the House of Representatives shall be
appointed by the Speaker also based on
proportional representation of the parties or
coalitions therein with at least two (2)
members representing the minority.
Rule 18.2. Powers of the Congressional
Oversight Committee. - The Oversight
Committee shall have the power to
promulgate its own rules, to oversee the
implementation of this Act, and to review
or revise the implementing rules issued by
Rule 19.1. Budget. The budget of Php25.0

million appropriated by Congress under the
AMLA shall be used to defray the initial
operational expenses of the AMLC.
Appropriations for succeeding years shall
be included in the General Appropriations
Act. The BSP shall advance the funds
necessary to defray the capital outlay,
maintenance and other operating expenses
and personnel services of the AMLC subject
to reimbursement from the budget of the
AMLC as appropriated under the AMLA and
subsequent appropriations.
Rule 19.2. Costs and Expenses. - The budget
shall answer for indemnification for legal costs
and expenses reasonably incurred for the
services of external counsel in connection
with any civil, criminal or administrative
action, suit or proceedings to which members
of the AMLC and the Executive Director and
other members of the Secretariat may be made
a party by reason of the performance of their
functions or duties. The costs and expenses
incurred in defending the aforementioned
action, suit or proceeding may be paid by the
AMLC in advance of the final disposition of
such action, suit or proceeding upon receipt
of an undertaking by or on behalf of the
member to repay the amount advanced
should it be ultimately determined that said
member is not entitled to such
indemnification.
RULE 20 SEPARABILITY CLAUSE
Rule 20. Separability Clause. If any
provision of these Rules or the application
thereof to any person or circumstance is
APP. 52
05.12.31
held to be invalid, the other provisions of these

Rules, and the application of such provision
or Rule to other persons or circumstances,
shall not be affected thereby.
Committee and fifteen (15) days after its complete

publication in the Official Gazette or in a
newspaper of general circulation.
RULE 23 TRANSITORY PROVISIONS
RULE 21 REPEALING CLAUSE

Rule 21. Repealing Clause. All laws,
decrees, executive orders, rules and
regulations or parts thereof, including the
relevant provisions of R.A. No. 1405, as
amended; R.A. No. 6426, as amended; R.A.
No. 8791, as amended, and other similar laws,
as are inconsistent with the AMLA, are hereby
repealed, amended or modified accordingly.
RULE 22 EFFECTIVITY OF THE RULES
Rule 22. Effectivity. These Rules shall take effect
after its approval by the Congressional Oversight
Rule 23.1. - Transitory Provisions. Existing freeze orders issued by the

AMLC shall remain in force for a
period of thirty (30) days after
effectivity of this act, unless extended
by the Court of Appeals.
Rule 23.2. - Effect of R.A. No. 9194
on Cases for Extension of Freeze
Orders Resolved by the Court of
Appeals. - All existing freeze orders
which the Court of Appeals has
extended shall remain effective, unless
otherwise dissolved by the same court.
APP. 52a
07.12.31
ANTI-MONEY LAUNDERING REGULATIONS

Banks, QBs, trust entities and all other
institutions, and their subsidiaries and
affiliates supervised or regulated by the
BSP (covered institutions) shall strictly
comply with the provisions of Section 9
of R.A. No. 9160, as amended, and the
following rules and regulations on antimoney laundering.
1. Customer identification. Covered
institutions shall establish and record the
true identity of its clients based on official
documents. They shall maintain a system
of verifying the true identity of their clients
and, in case of corporate clients, require a
system of verifying their legal existence and
organizational structure, as well as the
authority and identification of all persons
purporting to act on their behalf.
The guidelines on Customer Due
Diligence for banks issued by the BASEL
Committee on Banking Supervision which
highlights the Know-Your-Customer (KYC)
standards to be observed in the design of
KYC programs are shown in Annex B.
The guidelines on the Account Opening
and Customer Identification issued by the
BASEL Committee on Banking Supervision
represent the starting point, which can be
used by banks in the area of customer
identification are shown in Annex C.
When establishing business relations
or conducting transactions (particularly
opening of deposit accounts, accepting
deposit substitutes, entering into trust and
other fiduciary transactions, renting of
safety deposit boxes, performing
remittances and other large cash
transactions) banks should take reasonable
measures to establish and record the true
identity of their clients. Said client
identification may be based on official or
other reliable documents and records.
a. In cases of corporate and other

legal entities, the following measures
should be taken, when necessary:
(1) Verification of the legal existence
and structure of the client from the
appropriate agency or from the client itself
or both, proof of incorporation, including
information concerning the customers
name, legal form, address, directors,
principal officers and provisions regulating
the power behind the entity.
(2) Verification of the authority and
identification of the person purporting to
act on behalf of the client.
b. In case of doubt as to whether their
purported clients or customers are acting
for themselves or for another, reasonable
measures should be taken to obtain the true
identity of the persons on whose behalf an
account is opened or a transaction
conducted.
c. The provisions of existing laws to
the contrary notwithstanding, anonymous
accounts, accounts under fictitious names,
and all other similar accounts shall be
absolutely prohibited. In case where
numbered accounts is allowed (i.e., peso
and foreign currency non-checking
numbered accounts), bank should ensure
that the client is identified in an official or
other identifying documents.
The BSP may conduct annual testing
solely limited to the determination of the
existence and the identity of the owners of
such accounts.
Banks shall phase out within a period
of one (1) year from 02 April 2001 or upon
their maturity, whichever is earlier,
anonymous accounts or accounts under
fictitious names as well as numbered
accounts being kept or managed by them,
which are not expressly allowed under
existing law.
APP. 52a
07.12.31
d. The identity of existing clients or

beneficial owners of deposits and other
funds held or being managed by the bank
should be renewed/updated at least every
other year.
e. All records of all transactions of
covered institutions shall be maintained
and safely stored for five (5) years from the
dates of transactions. With respect to
closed accounts, the records on customer
identification, account files and business
correspondence, shall be preserved and
safely stored for at least five (5) years from
the dates when they were closed.
Such records must be sufficient to
permit reconstruction of individual
transactions so as to provide, if necessary,
evidence for prosecution of criminal
behaviour.
f. Special attention should be given
to all complex, unusual large transactions,
and all unusual patterns of transactions,
which have no apparent or visible lawful
purpose. The background and purpose of
such transactions should, as far as possible,
be examined, the findings established in
writing, and be available to help
supervisors, auditors and law enforcement
agencies.
g. Banks should not, or should at least
avoid, transacting business with criminals.
Reasonable measures should be adopted
to prevent the use of their facilities for
laundering of proceeds of crime and other
illegal activities.
h. Banks are enjoined to require their
clients FDXs/MCs and RAs to submit a copy
of their certificate of registration issued by
the BSP. This requirement shall be
considered as part of KYC compliance
procedures.
The certificates can be confirmed or
verified with the appropriate department
of the BSP. The registration of FXDs/MCs
and the RAs with the BSP is provided for
under Sec. 4511N of the MORNBFIs.
2. Issuance of cashier's, manager's or

certified checks. Banks may issue cashiers,
managers or certified checks or other
similar instruments in blank or payable to
cash, bearer or numbered account subject
a. The amount of each check shall not
exceed P10,000;
b. The buyer of the check is properly
identified as required under this Section;
c. A register of said checks shall be
maintained with the following minimum
information:
(1) Date issued;
(2) Amount;
(3) Name of buyer;
(4) Date paid; and
(5) If the aggregate instruments
purchased by the same person within any
thirty (30) day period amounts to at least
P50,000, the purpose of the buyer should
be stated.
d. Banks which issue as well as those
which accept as deposits, said cashiers,
managers or certified checks or other
similar instruments issued in blank or
payable to cash, bearer or numbered account
shall take such measure(s) as may be
necessary to ensure that said instruments are
not being used/resorted to by the buyer or
depositor in furtherance of a money
laundering activity;
e. The deposit of said instruments shall
be subject to the same requirements/scrutiny
applicable to cash deposits; and
f. Transactions involving said
instruments should be accordingly
reported to the BSP if there is reasonable
ground to suspect that said transactions are
being used to launder funds of illegitimate
origin.
3. Programs
against
money
laundering. Programs against money
laundering should be developed. These
programs, should include, as a minimum:
APP. 52a
07.12.31
a. The development of internal policies,

procedures and controls, including the
designation of compliance officers at
management level, and adequate screening
procedures to ensure high standards when
hiring employees;
b. An ongoing employee training
program; and
c. An audit function to test the system.
4. Submission of plans of action
Banks shall submit a plan of action on how
to comply with the requirements of Items
"1", "3" and "5", on customers
identification, programs against money
laundering and requires reporting,
repectively, within thirty (30) days from
31 July 2000 or from opening of the bank.
5. Required reporting of certain
transactions. If there is reasonable ground
to believe that the funds are proceeds of
an unlawful activity as defined under R.A.
No. 9160, as amended, and/or its IRRs, the
transactions involving such funds or
attempts to transact the same, should be
reported to the Anti-Money Laundering
Council (AMLC) in accordance with Rules
5.2 and 5.3 of the AMLA IRRs.
a. Report on covered and suspicious
transactions.1 Banks shall report covered
transactions and suspicious transactions, as
defined in Rules 5.2 and 5.3 of the AMLA
IRRs, to the AMLC using the forms
prescribed by the AMLC. Reportable
transactions shall include the following:
(1) Outward remittances without
visible lawful purpose;
(2) Inward remittances without visible
lawful purpose or without underlying trade
transactions;
(3) Unusual purchases of foreign
exchange without visible lawful purpose;
(4) Unusual sales of foreign exchange
whose sources are not satisfactorily
established;
(5) Complex,
unusually
large
transactions, and all unusual patterns of
transactions, which have no apparent or
visible lawful purpose;
(6) Funds being managed or held as
deposit substitutes if there is reasonable
ground to believe that the same are
proceeds of criminal and other illegal
activities;
(7) Suspicious Transaction Indicators or
red flags as a guide in the submission to
the AMLC of reports of suspicious
transactions relating to potential or actual
financing of terrorism:
(a) Wire transfers between accounts,
without visible economic or business
purpose, especially if the wire transfers are
effected through countries which are
identified or connected with terrorist
activities;
(b) Sources and/or beneficiaries of
wire transfers are citizens of countries
which are identified or connected with
terrorist activities;
(c) Repetitive deposits or withdrawals
that cannot be explained or do not make
sense;
(d) Value of the transaction is over and
above what the client is capable of earning;
(e) Client is conducting a transaction
that is out of the ordinary for his known
business interest;
(f) Deposits being made by
individuals who have no known
connection or relation with the account
holder;
(g) An
individual
receiving
remittances, but has no family members
working in the country from which the
remittance is made;
(h) Client was reported and/or
mentioned in the news to be involved in
terrorist activities;
(i) Client is under investigation by law
enforcement agencies for possible
involvement in terrorist activities;
Amended by AMLC Resolution No. 292 dated 11.20.03 (Annex A) and AMLC Resolution No. 10 dated 31 January
2007 (Annex A-1).
1
APP. 52a
07.12.31
(j) Transactions of individuals,

companies or NGOs that are affiliated or
related to people suspected of being
connected to a terrorist group or a group
that advocates violent overthrow of a
government;
(k) Transactions of individuals,
companies or NGOs that are suspected as
being used to pay or receive funds from
revolutionary taxes;
(l) The NGO does not appear to have
expenses normally related to relief or
humanitarian effort;
(m) The absence of contributions from
donors located within the country of origin
of the NGO;
(n) A mismatch between the pattern
and size of financial transactions on the one
hand and the stated purpose and activity of
the NGO on the other;
(o) Incongruities between apparent
sources and amount of funds raised or
moved by the NGO;
(p) Any other transaction that is similar,
identical or analogous to any of the
foregoing; and
(8) All other suspicious transactions/
activities which can be reported without
violating any law.
The report on suspicious transactions
shall provide the following minimum
information:
(a) Name or names of the parties
involved;
(b) A brief description of the
transaction or transactions;
(c) Date(s) the transaction(s) occurred;
(d) Amount(s) involved in every
transaction; and
(e) Such other relevant information
which can be of help to the authorities
should there be an investigation.
b. Exemption from Bank Secrecy
Law. When reporting covered transactions
to the AMLC, covered institutions and their
officers, employees, representatives, agents,
advisors, consultants or associates shall not
be deemed to have violated R.A. No. 1405,

as amended; R.A. No. 6426, as amended;
R.A. No. 8791 and other similar laws, but
are prohibited from communicating, directly
or indirectly, in any manner or by any
means, to any person the fact that a covered
transaction report was made, the contents
thereof, or any other information in relation
thereto. In case of violation thereof, the
concerned officer, employee, representative,
agent, advisor, consultant or associate of
the covered institution, shall be criminally
liable. However, no administrative, criminal
or civil proceedings, shall lie against any
person for having made a covered
transaction report in the regular
performance of his duties and in good faith,
whether or not such reporting results in any
criminal prosecution under R.A. No. 9160,
as amended, or any other Philippine law.
c. Prohibition from disclosure of the
covered transaction report. When reporting
covered transactions to the AMLC, covered
institutions and their officers, employees,
representatives, agents, advisors, consultants
or associates are prohibited from
communicating, directly or indirectly, in
any manner or by any means, to any
person, entity, the media, the fact that a
covered transaction report was made, the
contents therof, or any other information in
relation thereto. Neither may such
reporting be published or aired in any
manner or form by the mass media,
electronic mail, or other similar devices.
In case of violation thereof, the concerned
officer, employee, representative, agent,
advisor, consultant or associate of the
covered institution, or media shall be held
criminally liable.
6. Certification of compliance with
anti-money laundering regulations. Banks
shall submit annually to the BSP thru the
department a certification (Appendix 53)
signed by bank president or officer of
APP. 52a
07.12.31
equivalent rank and by their compliance

officer to the effect that they have
monitored compliance with existing
anti-money laundering regulations.
The certification shall be submitted in
accordance with Appendix 6 and shall be
considered a Category A-2 report.
7. Acceptance of second-endorsed
checks. Banks shall adopt stricter policy
guidelines in the acceptance of secondendorsed checks to ensure that they are not
being used as instruments for money
laundering or other illegal activities.
For this purpose, banks shall limit the
acceptance of second-endorsed checks
from properly identified clients and only

after establishing that the nature of the
business of said client justifies, or at least,
makes practical the deposit of secondendorsed checks. In case of isolated
transactions involving deposits of
second-endorsed checks by clients who
are not engaged in trade or business, the
identity of the first endorser should be
established and the record of the
identification shall also be kept for five
(5) years. It is also understood that banks
shall at all times follow the Know-YourCustomer (KYC) rules whenever they
handle or transact second-endorsed checks.
(As amended by CL-2007-010 dated 28 February 2007)
APP. 52a
07.12.31
Annex A
AMLC Resolution No. 292
RULES ON SUBMISSION OF COVERED TRANSACTION REPORTS AND

SUSPICIOUS TRANSACTION REPORTS BY COVERED INSTITUTIONS*
1. All covered institutions are required
to file STRs on transactions involving all
kinds of monetary instruments or property.
2. Banks shall file CTRs on transactions
involving all kinds of monetary instruments
or property, i.e., in cash or non-cash,
whether in domestic or foreign currency.
3. Covered institutions, other than
banks, shall file CTRs on transactions in
cash or foreign currency or other monetary
instruments (other than checks) or
properties. Due to the nature of the
transactions in the stock exchange, only the
brokers-dealers shall be required to file CTRs
and STRs. The PSE, PCD, SCCP and transfer
agents are exempt from filing CTRs. They,
are however, required to file STRs when the
transactions that pass through them are
deemed to be suspicious.
4. Where the covered institution
engages in bulk transactions with a bank,
i.e., deposits of premium payments in bulk
or settlements of trade, and the bulk
transactions do not distinguish clients and
their respective transaction amounts, said
covered institutions shall be required to file

CTRs on its clients whose transactions
exceed P500,000 and are included in the
bulk transactions.
5. With respect to insurance
companies, when the total amount of the
premiums for the entire year, regardless of
the mode of payment (monthly, quarterly,
semi-annually or annually), exceeds
P500,000, such amount shall be reported
as a covered transaction, even if the
amounts of the amortizations are less than
the threshold amount. The CTR shall be
filed upon payment of the first premium
amount, regardless of the mode of payment.
Under this rule, the insurance company
shall file the CTR only once every year until
the policy matures or rescinded, whichever
comes first.
6. The submission of CTRs is deferred
until the AMLC directs otherwise.
Submission of STRs, however, are not
deferred and covered institutions are
mandated to submit such STRs when the
circumstances so require.
*a. The Anti-Money Laundering Council (AMLC), in the exercise of its authority under Sections 7(1) and 9 of Republic
Act No. 9160, otherwise known as the Anti-Money Laundering Act of 2001, as amended, and its Revised Implementing
Rules and Regulations, resolved to:
(1) Defer reporting by covered institutions to AMLC of the following non-cash, no/low risk covered transactions:
Transactions between banks and the BSP;
Transactions between banks operating in the Philippines;
Internal operating expenses of the banks;
Transactions between banks and government agencies;
Transactions involving transfer of funds from one deposit account to another deposit account of the same person
within the same bank;
Roll-overs of placements of time deposits; and
Loan interest/principal payment debited against borrowers deposit account maintained with the lending bank.
(2) Request the BSP-supervised institutions, through the Association of Bank Compliance Officers (ABCOMP), to determine
and report to AMLC the specific transactions falling within the purview of the aforesaid BSP-identified categories on non-cash,
no/low risk covered transactions.
b. All covered institutions should:
(1) Submit corresponding electronic copy version, in the required format, of those STRs previously submitted in
hard copy or the hard copy version of those submitted only in electronic form, as the case may be, retroactive to 05 January
2004; and
(2) Re-submit in required electronic form, those CTRs that have been submitted previously in hard copy or in
diskette not in the required format, retroactive to 23 March 2003.
APP. 52a
07.12.31
Annex A-1

It has come to the Councils attention
that a number of banks failed to file
Suspicious Transaction Reports (STRs) in
cases involving deposit of fraudulent or
spurious checks based on the impression
that only either the original depository
bank or drawee bank has the obligation to
file the required STR.
Some banks are also of the impression
that the filing to the BSP of Reports on
Crimes and Losses involving deposit of
fraudulent or spurious checks dispenses
with the filing of STR with the AMLC.
A check deposit usually involves three
(3) parties: the depositor, the depository
bank and the drawee bank. In cases where
the depository bank has no clearing
facilities, the check is deposited to another
bank (presenting bank) which has clearing
facilities, which shall then present the
check to the drawee bank for payment.
Necessarily, each movement of the check
creates a contractual relationship between
the transacting parties, i.e., between the
depositor and the depository bank;
between the depository bank and the
presenting bank; and between the
presenting bank and the drawee bank. In
other words, the initial deposit of a check
with a depository bank, its deposit with
another bank (in case the original
depository bank has no clearing facilities),
and its presentment to the drawee bank
for payment are all deemed separate or
individual transactions, as defined under
Section 3 (h) of R.A. 9160, as amended.
In case a fraudulent or spurious check
is deposited and the drawee bank detects
the fraudulent issuance and/or negotiation
thereof, it necessarily informs the
presenting bank of the dishonor of the
check and the reason for such dishonor. It
becomes incumbent upon the drawee

bank to report to the AMLC the fraudulent
transaction. The presenting bank, in turn,
informs the depository bank of the
dishonor of the check. Evidently, all the
transacting banks are actually informed of
the fraudulent character of the check.
As the deposit and presentment of the
fraudulent check are related to the unlawful
activity of Estafa, such transactions are
deemed suspicious and all transacting
banks should file STRs with the AMLC
within five (5) working days from
occurrence thereof, or from the time they
are notified or become aware of the
fraudulent or spurious character of the
check involved in the transactions,
pursuant to Section 9 (c) of the AMLA.
The Council resolved to enjoin all
banks to strictly comply with the
requirement on reporting of suspicious
transactions and remind them of the
following:
1. A bank through which a fraudulent
or spurious check passes, either as
depository, presenting, or drawee bank,
shall file the corresponding STR pursuant
to Section 9 (c) of R.A. No. 9160, as
amended.
2. The STR shall be filed within five
(5) working days from the occurrence of
the transaction, or from the time the
concerned bank is notified or becomes
aware of the spurious character of the check
or the fraudulent nature of the transaction.
3. The filing with the BSP of a Report
on Crimes and Losses relating to the
deposit of a fraudulent or spurious check
does not dispense with the filing of the STR
with the AMLC pursuant to Section 9 (c) of
R.A. 9160, as amended.
(CL-2007-010 dated 28 February 2007)
APP. 52a
07.12.31
Annex B
CUSTOMER DUE DILIGENCE FOR BANKS AND NON-BANK FINANCIAL

INTERMEDIARIES PERFORMING QUASI-BANKING FUNCTIONS (NBQBs)
1. Customer acceptance policy
Banks should develop clear customer
acceptance policies and procedures,
including a description of the types of
customer that are unacceptable to bank
management. In preparing such policies,
factors such as customers background,
country of origin, public or high profile
position, business activities or other risk
indicators should be considered. Banks
should develop graduated customer
acceptance policies and procedures that
require more extensive due diligence for
high risk customers. For example, the
policies may require the most basic
account-opening requirements for a
working individual with a small account
balance, whereas quite extensive due
diligence may be deemed essential for an
individual with a high net worth whose
source of funds is unclear. Decisions to
enter into business relationships with high
risk customers, such as individuals holding
important/prominent positions, public or
private (see below), should be taken
exclusively at senior management level.
2. Customer identification
Customer identification is an essential
element of KYC standards. A customer is
defined as any person or entity that keeps
an account with a bank and any person or
entity on whose behalf an account is
maintained, as well as the beneficiaries of
transactions conducted by professional
financial intermediaries. Specifically, a
customer should include an account holder
and the beneficial owner of an account. A
customer should also include the
beneficiary of a trust, an investment fund, a
pension fund or a company whose assets

are managed by an asset manager, or the
grantor of a trust.
Banks should establish a systematic
procedure for verifying the identity of new
customers and should never enter a
business relationship until the identity of a
new customer is satisfactorily established.
Banks should document and enforce
policies for identification of customers and
those acting on their behalf.1 The best
documents for verifying the identity of
customers are those most difficult to obtain
illicitly and to counterfeit, such as passport,
drivers license or alien certificate of
registration. Special attention should be
exercised in the case of non-resident
customers and in no case should a bank shortcircuit identity procedures just because the
new customer is unable to present himself
for interview. The bank should always ask
itself why the customer has chosen to open
an account in a foreign jurisdiction.
The customer identification process
applies naturally at the outset of the
relationship, but there is also a need to
apply KYC standards to existing customer
accounts. Where such standards have been
introduced only recently and do not as yet
apply fully to existing customers, a risk
assessment exercise can be undertaken and
priority given to obtaining necessary
information, where it is deficient, in respect
of the higher risk cases. An appropriate time
to review the information available on
existing customers is when a transaction of
significance takes place, or when there is a
material change in the way that the account
is operated. However, if a bank is aware
that it lacks sufficient information about an
Core Principles Methodology, Essential Criterion 2.
APP. 52a
07.12.31
existing high-risk customer, it should take

steps to ensure that all relevant information
is obtained as quickly as possible. In
addition, the supervisor needs to set an
appropriate target date for completion of a
KYC review and regularization of all
existing accounts. In any event, a bank
should undertake regular reviews of its
customer base to establish that it has upto-date information and a proper
understanding of its account holders
identity and of their business.
Banks that offer private banking services
are particularly exposed to reputational risk.
Private banking by nature involves a large
measure of confidentiality. Private banking
accounts can be opened in the name of an
individual, a commercial business, a trust,
an intermediary or a personalized
investment company. In each case
reputational risk may arise if the bank does
not diligently follow established KYC
procedures. In no circumstances should
private banking operations function
autonomously, or as a bank within a
bank1 , and no part of the bank should ever
escape the required procedures. This
means that all new clients and new
accounts should be approved by at least
one person other than the private banking
relationship manager. If particular
safeguards are put in place internally to
protect confidentiality of private banking
customers and their business, banks must
still ensure that at least equivalent scrutiny
and monitoring of these customers and their
business can be conducted, e.g., they must
be open to review by compliance officers
and auditors.
2.1 General identification requirements
Banks need to obtain all information
necessary to establish to their full
satisfaction the identity of each new
customer and the purpose and intended

nature of the business relationship. The
extent and nature of the information
depends on the type of applicant (personal,
corporate, etc.) and the expected size of
the account. National supervisors are
encouraged to provide guidance to assist
banks in their designing their own
identification procedures. Examples of the
type of information that would be
appropriate are set out in Annex B-1.
Banks should apply their full KYC
procedures to applicants that plan to
transfer an opening balance from another
FI, bearing in mind that the previous
account manager may have asked for the
account to be removed because of a
concern about dubious activities.
Banks should never agree to open an
account or conduct ongoing business with
a customer who insists on anonymity or
bearer status or who gives a fictitious
name. Nor should confidential numbered2
accounts function as anonymous accounts
but they should be subject to exactly the
same KYC procedures as all other customer
accounts, even if the test is carried out by
selected staff. Whereas a numbered
account can offer additional protection for
the identity of the account-holder, the
identity must be known to a sufficient
number of staff to operate proper due
diligence. Such accounts should in no
circumstances be used to hide the customer
identity from a banks compliance function
or from the supervisors.
Banks need to be vigilant in
preventing corporate business entities
from being used by natural persons as a
method of operating anonymous accounts.
Personal asset holding vehicles, such as
international business companies (IBCs),
may make proper identification of
customers or beneficial owners difficult.
Some banks insulate their private banking functions or create Chinese walls as a means of providing additional
protection for customer confidentiality.
In a numbered account, the name of the beneficial owner is known to the bank but is substituted by an account
number or code name in subsequent documentation.
APP. 52a
07.12.31
A bank should take all steps necessary to

satisfy itself that it knows the true identity
of the ultimate owner of all such entities.
2.2
Specific identification issues

There are a number of more detailed
issues relating to customer identification
which need to be addressed. Particular
comments are invited on the issues
mentioned in this section. Several of these
are currently under consideration by the
FATF as part of a general review of its forty
(40) recommendations, and the Working
Group recognizes the need to be
consistent with the FATF.
2.2.1 Trust, nominee and fiduciary
accounts or client accounts opened by
professional intermediaries
Trust, nominee and fiduciary accounts
can be used to avoid customer identification
procedures. While it may be legitimate
under certain circumstances to provide an
extra layer of security to protect the
confidentiality of legitimate private banking
customers, it is essential that the true
relationship is understood. Banks should
establish whether the customer is acting on
behalf of another person as trustee, nominee
or professional intermediary (e.g., a lawyer
or an accountant). If so, a necessary
precondition is receipt of satisfactory
evidence of the identity of any intermediaries
and of the persons upon whose behalf they
are acting, as well as details of the nature of
the trust or other arrangements in place.
Banks may hold pooled accounts
(e.g., client accounts managed by law
firms) or accounts opened on behalf of
pooled entities, such as mutual funds and
money managers. In such cases, banks
have to decide, given the circumstances,
whether the customer is the intermediary,
or whether it would be more appropriate
to look through the intermediary to the
ultimate beneficial owners. In each case,
the identity of the customer that is subject
to due diligence should be clearly

established. The beneficial owners should
be verified where possible. Where not,
the banks should perform due diligence
on the intermediary and establish to its
complete satisfaction that the intermediary
has a sound due diligence process for each
of its clients.
Special care needs to be exercised in
initiating business transactions with
companies that have nominee shareholders
or shares in bearer form. Satisfactory
evidence of the identity of beneficial
owners of all companies needs to be
obtained.
The above procedures may prove
difficult for banks in some countries to
follow. In the case of professional
intermediaries such as lawyers, there might
exist professional codes of conduct
preventing the dissemination of
information concerning their clients. The
FATF is currently engaged in a review of
KYC procedures governing accounts
opened by lawyers on behalf of clients.
The Working Group has therefore not taken
a definitive position on this issue.
2.2.2 Introduced business
The performance of identification
procedures can be time consuming and
there is a natural desire to limit any
inconvenience for new customers. In some
countries, it has therefore become
customary for banks to rely on the
procedures undertaken by other banks or
introducers when business is being
referred. In doing so, banks risk placing
excessive reliance on the due diligence
procedures that they expect the introducers
to have performed. Relying on due
diligence conducted by an introducer,
however reputable, does not in any way
remove the ultimate responsibility of the
recipient bank to know its customers and
their business. In particular, banks should
not rely on introducers that are subject to
APP. 52a
07.12.31
weaker standards than those governing

the banks own KYC procedures or that are
unwilling to share copies of due diligence
documentation.
The FATF is currently engaged in a
review of the appropriateness of eligible
introducers, i.e., whether they should be
confined to reputable banks only or should
extend to other regulated institutions,
whether a bank should establish a
contractual relationship with its introducers
and whether it is appropriate to rely on a
third party introducer at all. The Working
Group is still developing its thinking on this
topic.
2.2.3 Reputational risk
Business relationship with individuals
holding important/prominent positions,
public or private, and with persons or
companies clearly related to them may
expose a bank to significant reputational
and/or legal risks.
Accepting and managing funds from
such persons could put at risk the banks
own reputation and can undermine public
confidence in the ethical standards of an
entire financial centre, since such cases
usually receive extensive media attention and
strong political reaction, even if the illegal
origin of the assets is often difficult to prove.
In addition, the bank may be subject to costly
information requests and seizure orders
from law enforcement or judicial authorities
(including international mutual assistance
procedures in criminal matters) and could
be liable to actions for damages by the state
concerned or the victims of a regime.
Under certain circumstances, the bank and/
or its officers and employees themselves
can be exposed to charges of money
laundering, if they know or should have
known that the funds stemmed from
corruption or other serious crimes.
3. On-going monitoring of high risk

accounts
On-going monitoring of accounts and
transactions is an essential aspect of
effective KYC procedures. Banks can only
effectively control and reduce their risk if
they have an understanding of normal and
reasonable account activity of their
customers. Without such knowledge, they
are likely to fail in their duty to report
suspicious transactions to the appropriate
authorities in cases where they are required
to do so. The on-going monitoring process
includes the following:
Banks should develop clear
standards on what records must be kept on
customer identification and individual
transactions and the retention period.4 As
the starting point and natural follow-up of
the identification process, banks should
obtain and keep up to date customer
identification papers and retain them for at
least five (5) years after an account is
closed. They should also retain all financial
transaction records for at least five (5) years
after the transaction has taken place.
Banks should ensure that they have
adequate management information systems
to provide managers and compliance
officers with timely information needed to
identify, analyze and effectively monitor
higher risk customer accounts. The types
of reports that may be needed include
reports of missing account opening
documentation, transactions made through
a customer account that are unusual, and
aggregations of a customers total
relationship with the bank.
Senior management of a bank in
charge of private banking business
should know the personal circumstances
of the banks large/important customers
and be alert to sources of third party
information. Every bank should draw its
Core Principles Methodology, Essential Criterion 2.
APP. 52a
07.12.31
own distinction between large/important

customers and others, and set threshold
indicators for them accordingly, taking
into account the country of origin and
other risk factors. Significant transactions
by high-risk customers should be
approved by a senior manager.
Banks should have systems in
place to detect unusual or suspicious
patterns of activity. This can be done by
establishing limits for a particular class or
category of accounts. Particular attention
should be paid to transactions that exceed
these limits. Certain types of transactions
should alert banks to the possibility that
the customer is conducting undesirable
activities. They may include transactions
that do not make economic or commercial
sense, or that involve large amounts of cash
deposits that are not consistent with the
normal and expected transactions of the
customer. Very high account turnover,
inconsistent with the size of the balance,
may indicate that funds are being washed
through the account. A list of suspicious
activities drawn up by supervisors can be
very helpful to banks.
Bank should develop a clear policy
and internal guidelines, procedures and
controls and remain especially vigilant
regarding business relationships with
individuals holding important/prominent
positions, public or private, and high
profile individuals or with persons and
companies that are clearly related to or
associated with them.1
4. Risk Management
Effective KYC procedures embrace
routines for proper management oversight,
systems and controls, segregation of duties,
training and other related policies. The

board of directors of the bank should be
fully committed to an effective KYC
programme by establishing appropriate
procedures and ensuring their
effectiveness. Banks should appoint a
senior officer with explicit responsibility for
ensuring that the banks policies and
procedures are, at a minimum, in
accordance with local supervisory practice.
Banks should have clear written
procedures, communicated to all
personnel, for staff to report suspicious
transactions to a specified senior manager.
That manager must then assess whether the
banks statutory obligations under
recognized suspicious activity reporting
regimes require the transaction to be
reported to the appropriate law
enforcement and supervisory authorities.
All banks must have an ongoing
employee-training programme so that bank
staff is adequately trained in KYC
procedures. The timing and content of
training for various sectors of staff will need
to be adapted by the bank for its own
needs. Training requirements should have
a different focus for new staff, front-line
staff, compliance staff or staff dealing with
new customers. New staff should be
educated in the importance of KYC policies
and the basic requirements at the bank.
Front-line staff members who deal directly
with the public should be trained to verify
the customer identity for new customers,
to exercise due diligence in handling
accounts of existing customers on an
ongoing basis and to detect patterns of
suspicious activity. Regular refresher
training should be provided to ensure that
staff is reminded of their responsibilities
It is unrealistic to expect the bank to know or investigate every distant family, political or business connection of a foreign
customer. The need to pursue suspicions will depend on the size of the assets or turnover, pattern of transactions,
economic background, reputation of the country, plausibility of the customers explanations etc. It should however be
noted that individuals holding important/prominent positions, public or private (or rather their family members and friends)
would not necessarily present themselves in that capacity, but rather as ordinary (albeit wealthy) business people, masking
the fact they owe their high position in a legitimate business corporation only to their privileged relation with the holder
of the public office.
APP. 52a
07.12.31
and is kept informed of new developments.

It is crucial that all relevant staff fully
understand the need for and implement
KYC policies consistently. A culture within
banks that promotes such understanding is
the key to successful implementation.
Banks internal audit and compliance
functions have important responsibilities in
evaluating and ensuring adherence to KYC
policies and procedures. As a general rule,
the compliance function provides an
independent evaluation of the banks
own policies and procedures, including
legal and regulatory requirements. Its
responsibilities should include ongoing
monitoring of staff performance through
sample testing of compliance and review
of exception reports to alert senior
management or the Board of Directors

if it believes management is failing to
address KYC procedures in a
responsible manner.
Internal audit plays an important role
in independently evaluating the risk
management and controls, discharging its
responsibility to the Audit Committee of
the board of directors or a similar oversight
body through periodic evaluations of the
effectiveness of compliance with KYC
policies and procedures. Management
should ensure that audit functions are
staffed adequately with individuals who are
well-versed in such policies and procedures.
In addition, internal auditors should be
proactive in following-up their findings and
criticisms.
APP. 52a
07.12.31
Annex B-1
GENERAL IDENTIFICATION REQUIREMENTS

This annex presents a suggested list of
identification requirements for personal
customers and corporates. National
supervisors are encouraged to provide
guidance to assist banks in designing their
own identification procedures.
Personal customers
For personal customers, banks need to
obtain the following information:
1. Name and/or names used;
2. Permanent residential address;
3. Date and place of birth;
4. Name of employer or nature of selfemployment/business;
5. Specimen signature; and
6. Source of funds.
Additional information would relate to
nationality or country of origin, public or
high profile position, etc. Banks should
verify the information against original
documents of identity issued by an official
authority (examples including identity
cards and passports). Such documents
should be those that are most difficult to
obtain illicitly. In countries where new
customers do not possess the prime identity
documents, e.g., identity cards, passports
or driving licenses, some flexibility may be

required. However, particular care should
be taken in accepting documents that are
easily forged or which can be easily
obtained in false identities. Where there is
face to face contact, the appearance should
be verified against an official document
bearing a photograph. Any subsequent
changes to the above information should
also be recorded and verified.
Corporate and other business customers
For corporate and other business
customers, banks should obtain evidence
of their legal status, such as an incorporation
document, partnership agreement,
association documents or a business licence.
For large corporate accounts, a financial
statement of the business or a description
of the customers principal line of business
should also be obtained. In addition, if
significant changes to the company structure
or ownership occur subsequently, further
checks should be made. In all cases, banks
need to verify that the corporation or
business entity exists and engages in its
stated business. The original documents or
certified copies of certificates should be
produced for verification.
APP. 52a
07.12.31
Annex C
General Guide to Account Opening and
Customer Identification
1. The Basel Committee on Banking
Supervision in its paper on Customer Due
Diligence for Banks published in October
2001 referred to the intention of the
Working Group on Cross-border Banking1
to develop guidance on customer
identification. Customer identification is
an essential element of an effective
customer due diligence programme which
banks need to put in place to guard against
reputational, operational, legal and
concentration risks. It is also necessary in
order to comply with anti-money
laundering legal requirements and a
prerequisite for the identification of bank
accounts related to terrorism.
2. What follows is account opening
and customer identification guidelines and
a general guide to good practice based on
the principles of the Basel Committees
Customer Due Diligence for Banks paper.
This document, which has been developed
by the Working Group on Cross-border
Banking, does not cover every eventuality,
but instead focuses on some of the
mechanisms that banks can use in
developing an effective customer
identification programme.
3. These guidelines represent a
starting point for supervisors and banks in
the area of customer identification. This
document does not address the other
elements of the Customer Due Diligence
for Banks paper, such as the ongoing
monitoring of accounts. However, these
elements should be considered in the
development of effective customer due
diligence, anti-money laundering and
combating the financing of terrorism
procedures.
4. These guidelines may be adapted

for use by national supervisors who are
seeking to develop or enhance customer
identification programmes. However,
supervisors should recognize that any
customer identification programme should
reflect the different types of customers
(individual vs. institution) and the different
levels of risk resulting from a customers
relationship with a bank. Higher risk
transactions and relationships, such as
those with politically exposed persons or
organizations, will clearly require greater
scrutiny than lower risk transactions and
accounts.
5. Guidelines and best practices
created by national supervisors should
also reflect the various types of
transactions that are most prevalent in the
national banking system. For example,
non-face-to-face opening of accounts may
be more prevalent in one country than
another. For this reason the customer
identification procedures may differ
between countries.
6. Some identification documents are
more vulnerable to fraud than others. For
those that are most susceptible to fraud,
or where there is uncertainty concerning
the validity of the document(s) presented,
the bank should verify the information
provided by the customer through
additional inquiries or other sources of
information.
7. Customer identification documents
should be retained for at least five (5) years
after an account is closed. All financial
transaction records should be retained for
at least five (5) years after the transaction
has taken place.
The Working Group on Cross-border Banking is a joint group consisting of members of the Basel Committee and of the
Offshore Group of Banking Supervisors.
1
APP. 52a
07.12.31
8. These guidelines are divided into

two (2) sections covering different aspects
of customer identification. Section A
describes what types of information should
be collected and verified for natural
persons seeking to open accounts or
perform transactions. Section B describes
what types of information should be
collected and verified for institutions and
is in two (2) parts, the first relating to
corporate vehicles and the second to other
types of institutions.
9. All the terms used in these
guidelines have the same meaning as in
the Customer Due Diligence for Banks
paper.
Section A. Natural Persons
10. For natural persons the following
information should be obtained, where
applicable:
legal name and any other names
used (such as maiden name);
correct permanent address (the
full address should be obtained; a Post
Office box number is not sufficient);
telephone number, fax number,
and e-mail address;
date and place of birth;
nationality;
occupation, public position held
and/or name of employer;
an official person identification
number or other unique identifier
contained in an unexpired official
document (e.g., passport, identification
card, residence permit, social security
records, driving license) that bears a
photograph of the customer;
type of account and nature of the
banking relationship;
signature.
11. The bank should verify this
information by at least one of the following
methods:
confirming the date of birth from an

official document (e.g., birth certificate,
passport, identity card, social security
records);
confirming the permanent address
(e.g., utility bill, tax assessment, bank
statement, a letter from a public authority);
contacting the customer by
telephone, by letter or by e-mail to confirm
the information supplied after an account
has been opened (e.g., a disconnected
phone, returned mail, or incorrect e-mail
address should warrant further
investigation);
confirming the validity of the official
documentation provided through
certification by an authorized person (e.g.,
embassy official, notary public).
12. The examples quoted above are not
the only possibilities. In particular
jurisdictions there may be other documents
of an equivalent nature which may be
produced as satisfactory evidence of
customers identity.
13. FIs should apply equally effective
customer identification procedures for nonface-to-face customers as for those
available for interview.
14. From the information provided in
paragraph 10, FIs should be able to make
an initial assessment of a customers risk
profile. Particular attention needs to be
focused on those customers identified
thereby as having a higher risk profile and
additional inquiries made or information
obtained in respect of those customers to
evidence of an individuals
permanent address sought through a credit
reference agency search, or through
independent verification by home visits;
personal reference (i.e., by an
existing customer of the same institution);
prior bank reference and contact
with the bank regarding the customer;
source of wealth; and
APP. 52a
07.12.31
verification of employment, public

position held (where appropriate).
15. For one-off or occasional
transactions where the amount of the
transaction or series of linked transactions
does not exceed an established minimum
monetary value, it might be sufficient to
require and record only name and address.
16. It is important that the customer
acceptance policy is not so restrictive that
it results in a denial of access by the general
public to banking services, especially for
people who are financially or socially
disadvantaged.
Section B. Institutions
17. The underlying principles of
customer identification for natural persons
have equal application to customer
identification for all institutions. Where in
the following the identification and
verification of natural persons is involved,
the foregoing guidance in respect of such
persons should have equal application.
18. The term institution includes any
entity that is not a natural person. In
considering the customer identification
guidance for the different types of
institutions, particular attention should be
given to the different levels of risk
involved.
I. Corporate Entities
19. For corporate entities (i.e.,
corporations and partnerships), the
following information should be obtained:
name of institution;
principal place of institutions
business operations;
mailing address of institution;
contact telephone and fax numbers;
some form of official identification
number, if available (e.g., TIN);
the original or certified copy of the
Certificate of Incorporation and
Memorandum and Articles of Association;
the resolution of the Board of

Directors to open an account and
identification of those who have
authority to operate the account; and
nature and purpose of business and
its legitimacy.
information by at least one of the following
methods:
for established corporate entities reviewing a copy of the latest report and
accounts (audited if available);
conducting an enquiry by a
business information service, or an
undertaking from a reputable and known
firm of lawyers or accountants confirming
the documents submitted;
undertaking a company search and/
or other commercial enquiries to see that
the institution has not been, or is not in the
process of being, dissolved, struck off,
wound up or terminated;
utilizing
an
independent
information verification process, such as
by accessing public
and
private
databases;
obtaining prior bank references;
visiting the corporate entity,
where practical; and
contacting the corporate entity by
telephone, mail or e-mail.
21. The bank should also take
reasonable steps to verify the identity and
reputation of any agent that opens an
account on behalf of a corporate customer,
if that agent is not an officer of the corporate
customer.
Corporations/Partnerships
22. For corporations/partnerships, the
principal guidance is to look behind the
institution to identify those who have
control over the business and the
companys/partnerships assets, including
those who have ultimate control. For
corporations, particular attention should be
paid to shareholders, signatories, or others
APP. 52a
07.12.31
who inject a significant proportion of the

capital or financial support or otherwise
exercise control. Where the owner is
another corporate entity or trust, the
objective is to undertake reasonable
measures to look behind that company or
entity and to verify the identity of the
principals. What constitutes control for this
purpose will depend on the nature of a
company, and may rest in those who are
mandated to manage funds, accounts or
investments without requiring further
authorization, and who would be in a
position to override internal procedures and
control mechanisms. For partnerships,
each partner should be identified and it is
also important to identify immediate
family members that have ownership
control.
23. Where a company is listed on a
recognized stock exchange or is a
subsidiary of such a company then the
company itself may be considered to be
the principal to be identified. However,
consideration should be given to whether
there is effective control of a listed
company by an individual, small group of
individuals or another corporate entity or
trust. If this is the case then those
controllers should also be considered to
be principals and identified accordingly.
II. Other Types of Institution
24. For the account categories referred
to paragraphs 26 to 34, the following
information should be obtained in addition
to that required to verify the identity of the
principals:
name of account;
mailing address;
contact telephone and fax numbers;
some form of official identification
number, if available (e.g., TIN);
description of the purpose/activities
of the account holder (e.g., in a formal
constitution); and
copy of documentation confirming

the legal existence of the account holder
(e.g., register of charities).
information by at least one of the following:
obtaining
an
independent
undertaking from a reputable and known firm
of lawyers or accountants confirming the
documents submitted;
obtaining prior bank references; and
accessing public and private
databases or official sources.
Retirement Benefit Programmes

26. Where an occupational pension
programme, employee benefit trust or
share option plan is an applicant for an
account the trustee and any other person
who has control over the relationship (e.g.,
administrator, programme manager, and
account signatories) should be considered
as principals and the bank should take steps
to verify their identities.
Mutuals/Friendly Societies, Cooperatives
and Provident Societies
27. Where these entities are an
applicant for an account, the principals to
be identified should be considered to be
those persons exercising control or
significant influence over the organizations
assets. This will often include board
members plus executives and account
signatories.
Charities, Clubs and Associations
28. In the case of accounts to be
opened for charities, clubs, and societies,
the bank should take reasonable steps to
identify and verify at least two signatories
along with the institution itself. The
principals who should be identified should
be considered to be those persons
exercising control or significant influence
over the organizations assets. This will
often include members of a governing body
APP. 52a
07.12.31
or committee, the president, any board

members, the treasurer, and all signatories.
29. In all cases, independent verification
should be obtained that the persons involved
are true representatives of the institution.
Independent confirmation should also be
obtained of the purpose of the institution.
Trusts and Foundations
30. When opening an account for a
trust, the bank should take reasonable steps
to verify the trustee(s), the settler(s) of the
trust (including any persons settling assets
into the trust) any protector(s),
beneficiary(ies), and signatories.
Beneficiaries should be identified when
they are defined. In the case of a
foundation, steps should be taken to verify
the founder, the managers/directors and the
beneficiaries.
Professional Intermediaries
31. When a professional intermediary
opens a client account on behalf of a single
client that client must be identified.
Professional intermediaries will often open
pooled accounts on behalf of a number
of entities. Where funds held by the
intermediary are not co-mingled but where
there are sub-accounts which can be
attributable to each beneficial owner, all
beneficial owners of the account held by
the intermediary should be identified.
Where the funds are co-mingled, the bank
should look through to the beneficial
owners; however, there may be
circumstances which should be set out in
supervisory guidance where the bank may
not need to look beyond the intermediary

(e.g., when the intermediary is subject to
the same due diligence standards in respect
of its client base as the bank).
32. Where such circumstances apply
and an account is opened for an open or
close-ended investment company, unit
trust or limited partnership which is also
subject to the same diligence standards in
respect of its client base as the bank, the
following should be considered as
principals and the bank should take steps
to identify:
the fund itself;
its directors or any controlling board
where it is a company;
its trustee where it is a unit trust;
its managing (general) partner
where it is a limited partnership;
account signatories; and
any other person who has control
over the relationship, e.g., fund
administrator or manager.
33. Where other investment vehicles
are involved, the same steps should be taken
as in paragraph 32 where it is appropriate to
do so. In addition, all reasonable steps
should be taken to verify the identity of
the beneficial owners of the funds and of
those who have control of the funds.
34. Intermediaries should be treated as
individual customers of the bank and the
standing of the intermediary should be
separately verified by obtaining the
appropriate information drawn from the
itemized lists included in paragraphs 19-20
above.
(As amended by CL-2007-010 dated 28 February 2007)
APP. 52a
07.12.31
Annex D

Series of 2005
Pursuant to Section 9-c of the AntiMoney Laundering Act, as amended,
covered institutions (CIs) shall report to the
AMLC all covered transactions and
suspicious transactions within five (5)
working days from occurrence thereof,
subject to the circumstances described in
Resolution No. 292 dated 24 October 2003
which remains in full force and effect.
WHEREFORE, the Council, resolves as
it hereby resolved, to approve the following
policies and guidelines in reckoning CIs
compliance with the prescribed reporting
period:
1. The following non-working days are
excluded from the counting of the prescribed
reporting period:
weekend (Saturday and Sunday)
official regular national holiday
officially declared national holiday
(special non-working day nationwide)
officially declared local holiday in
the locality where AMLC Secretariat Office
is located
2. A non-reporting day may be declared
by the AMLC Secretariat when the File
Transfer and Reporting Facility (FTRF), used
by the CIs in transmitting their electronic
reports to AMLC, is unavailable to all CIs
for at least five (5) consecutive hours during
the day
AMLC-declared non-reporting day
is excluded from the counting of the
prescribed reporting period.
The Executive Director of the AMLC
Secretariat (or the Officer-in-charge) is
authorized to declare such day as a nonreporting day upon notification and
justification by the Deputy Director of IMAS
AMLC Secretariat.
3. Local holidays, except for officially

declared local holidays in the locality where
the AMLC Secretariat Office is located, are
treated as working days even for CIs located
in such locality declared as on holiday, and
hence, included in the counting of the
prescribed reporting period. However, the
CIs affected may file a deviation request with
the AMLC Secretariat.
CIs request for deviation shall be
subject to approval of the Executive Director
of the AMLC Secretariat (or the Officer-incharge) upon recommendation of the
Deputy Director of IMAS AMLC Secretariat.
It shall be the basis of manually recomputing
whatever penalties that would be
automatically computed by TMAS.
4. Officially-declared non-working days in
localities or regions affected by natural
calamities such as flood, typhoon,
earthquake, etc. may be excluded from the
counting of the prescribed reporting period
for CIs located in affected localities or
regions subject to submission of deviation
request by the CI.
CIs request for deviation shall be
subject to approval of the Executive Director
of the AMLC Secretariat (or the Officer-incharge) upon recommendation of the
Deputy Director of IMAS AMLC Secretariat.
It shall be the basis of manually recomputing
whatever penalties that would be
automatically computed by TMAS.
WHEREFORE, the Council, resolves as
it hereby resolved, to consider and include
the foregoing policies and guidelines in the
ongoing development and implementation
of AMLCs Transaction Monitoring and
Analysis System (TMAS) and specifically, for
the computation of the penalty for delayed
reporting by the CIs.
APP. 52b
05.12.31
MINIMUM GUIDELINES FOR FUND TRANSFERS

1. Nature of fund transfers
Fund transfers are remittances of funds
from one (1) bank to another, either locally
or internationally, in local or foreign
currencies. It is used for moving the
proceeds of loans, reimbursing letters of
credit, payment of collections, foreign
exchange transactions, etc. This may also
include the movement of money between
customers or between accounts of the same
customer, or from a customer to a third
party who is not a customer of the bank.
Transfers can be effected by
teletransmission, draft, managers check, or
certified check depending on the request
of the applicant. The term also includes
Automated Clearing House transfers,
transfers made at automated teller
machines (ATMs) and point-of-sale
terminals.
2. Responsibility and oversight
a. The financial institutions should be
governed by a Manually Initiated Fund
Transfers (MIFT) Policies and Procedures
for fund transfer requests that are manually
initiated (via fax, telephone, messenger,
electronic mail, file transfers, and other
similar manual origination means)
externally from clients or internally from
within the banking group/entities.
b. The policies and procedures
should specify personnel that will be
responsible for ensuring compliance with
the guidelines on fund transfer
transactions.
c. The policies and procedures shall
also provide for independent review by
appropriate personnel to monitor and
ensure continued compliance with the
institutions policies, procedures and
guidelines on fund transfers.
d. The financial institution shall allow

electronic wire transfer (internet transfer)
only upon its prior approval.
3. Risk-based due diligence
a. The bank should maintain a policies
and procedures manual for fund transfers
that is reasonably designed to prevent the
financial institution from being used to
facilitate money laundering and the
financing of terrorist activities. At a
minimum, the manual must incorporate
policies, procedures and internal controls
to:
Verify customer information (KYC);
Verify transactions that show
indicators of suspicious transactions,
particularly those instance stated under
Rule 3.b.1 of the Revised Implementing
Rules and Regulations (R.A. No. 9160, as
amended by R.A. No. 9194);
File reports (including covered
transaction/suspicious transactions reports);
Respond to regulators/law
enforcement requests;
Provide education and/or training
of personnel; and
Provide security procedures.
b. The bank should not accept fund
transfer instructions from and/or pay-out
fund transfers to non-customers, unless in
cases where the initiating party is an authenticated primary customer of a sending
group or unit of the bank.
c. If the fund sender/remitter is not a
bank or coming from non-FATF member
or non-compliant countries on AML, the
receiving bank must do the due diligence
on the beneficiary of the fund.
d. Whenever possible, manually
initiated fund transfer instructions should
not be the primary delivery method. Every
APP. 52b
05.12.31
effort should be made to provide the client

with an electronic banking solution.
4. Validation
a. For written and faxed transaction
initiations
The term validation applies to various
methods used by both sending and
receiving parties to verify the identity of the
sender of a message. Some validation
methods also verify elements in the
message including but not limited to
amount, value date and currency.
Validation must be performed by all bank
units. Some specific validation methods
are:
Test key: An algorithmic computation
method using a fixed set of factors known
only to the sender and receiver, used to
verify the sender and, in some cases, other
elements of the message.
Authentication: A cryptographic
process used to verify the sender and, in
some cases, the full text of a message.
Signature verification: A matching of
signature or other representation from a
source document request to a document
pre-signed by a bank customer and held on
file by the bank, or other documents held
by the customer (e.g. bank approved
acceptable identification), used to verify
the sender.
Telephone callback: A procedure used
to verify the authenticity of a message
received by telephone. The bank places a
return phone call to the customer using a
pre-determined telephone number on file
within the bank.
Validation procedures
i. Prior to the bank accepting from a
customer a manually initiated funds transfer
request, the customer must execute and
sign an agreement which preferably is part
of the account opening documentation,
wherein are outlined the manual instruction
procedures with related security procedures
including customer agreement to accept

responsibility for fraudulent or erroneous
instructions provided the bank has
complied with the stated security
procedures.
ii. It is mandatory that written MIFT
instructions are signature verified. In
addition, one (1) of the following primary
security procedures must be applied: a
recorded callback to the customer to
confirm the transaction instructions, or
testword arrangement/verification. The
callback or testword requirement may be
substituted by any of the following validity
checks: use of a controlled PIN or other
pre-established code; sequential
numbering control of messages; preestablished verifiable forms; same as prior
transmissions; standing/pre-defined
instructions; or value for value transactions.
iii. It is mandatory that faxed MIFT
instructions are signature verified and the
fax machine be located in a secured
environment with limited and controlled
staff access which permits visual
monitoring. If monitoring is not possible,
the equipment must be secured or
programmed to receive messages into a
password protected memory.
Faxed MIFT transactions below a
certain threshold (approved by the
President/Country Manager (for branches
of foreign banks) or Business Risk
Manager) may be processed with the
mandatory procedure described above and
an enhanced security procedure such as
(a) a recorded callback to the customer to
confirm the transaction instructions and/or
(b) testword arrangement/verification, and/
or (c) utilization of secured forms that
incorporate verifiable security procedures
such as watermarks or codes, and/or (d)
transmission encryption.
iv. Telephone callback numbers and
contacts must be securely controlled. The
confirmation callback is to be recorded and
made to the signatory/(ies) of the customers
APP. 52b
05.12.31
individual account(s). For commercial and

company accounts the callback will be
made to the signatory/(ies) of the account
or, if so authorized, another person
designated by the customer in the MIFT
agreement. The party called is to be
documented on the instructions. The
callback must be made by someone other
than (a) the person receiving the original
instructions and (b) effecting the signature
verification.
b. Over-the-counter
initiated
transactions. Over-the-counter initiated funds
transfers by the customers themselves require
positive identification of the customer and
verification of his/her signature. For
transactions over a threshold set by the
President/Country Manager (for branches of
foreign banks) or Business Risk Manager
these transactions shall also require a
recorded telephone callback confirmation or
another appropriate additional security
procedure.
5. Exception processing
On rare occasions, exceptions
processing may be necessary. When an
established control standard temporarily
cannot be met, a senior officer preferably
Vice President or above, designated in
writing by the President/Country Manager
(for branches of foreign banks) may approve
an exception processing standard because

of unique business circumstances. The
reason for creating the exception must be
clearly documented including the
identification of the applied compensating
controls.
6. Control and administration
policies for incoming fund/wire transfers
This section deals with teletransmission
payment orders received from Head office,
branches and banks requesting payment
or credit to be made to a specified
beneficiary.
a. Cash payments to beneficiaries
should only be made against proper receipt
and identification.
b. Payment orders with incomplete or
insufficient details should be referred
immediately to the remitter bank for
clarification. If no response is received
within a reasonable time, the matter should
be referred to the Compliance or Operations
Officer or his/her designated officer for
appropriate action as to whether to further
investigate or return funds.
7. Integration with anti-money
laundering program
These guidelines shall form part of the
institutions wider anti-money laundering
program.
APP. 52c
05.12.31
MINIMUM GUIDELINES FOR CORRESPONDENT BANKING ACCOUNT

OPENING AND CUSTOMER IDENTIFICATION
1. Nature of correspondent banking

activities. Correspondent banking refers
to activities of a bank having direct
connection or friendly service relations
with another bank.
2. Responsibility and oversight
Financial institutions should, in relation
to cross-border correspondent banking and
other similar relationships, in addition to
performing normal due diligence
measures:
a. Gather sufficient information about
a respondent institution to understand fully
the nature of the respondents business and
to determine from publicly available
information the reputation of the institution
and the quality of supervision, including
whether it has been subject to money
laundering or terrorist financing
investigation or regulatory action.
b. Assess the respondent institutions
anti-money laundering and terrorist
financing controls.
c. Obtain approval from senior
management before establishing new
correspondent relationships.
d. Document
the
respective
responsibilities of each institution.
e. With respect to payable-through
accounts, be satisfied that the respondent
bank has verified the identity of and
performed on-going due diligence on the
customers having direct access accounts
of the correspondent and that it is able to
provide relevant customer identification
data upon request to the correspondent
bank.
3. Riskbased due diligence

a. Correspondent Banking Clients
(CBC) presenting greater risk should be
subjected to a higher level of due diligence.
b. The financial institution should
consider the type of risk indicators in
initiating the correspondent banking
relationship, and on a continuing basis, to
ascertain what reasonable due diligence or
enhanced due diligence it will undertake.
c. The risk indicators to be considered
are as follows:
(1) The Correspondent Banking
Clients (CBC) domicile:
(a) Jurisdiction where the CBC is
based and/or where its ultimate parent is
headquartered. Certain jurisdictions are
internationally recognized as having
inadequate anti-money laundering
standards, insufficient regulatory
supervision or presenting greater risk for
crime, corruption or terrorist financing. On
the other hand, other jurisdictions such as
members of the Financial Action Task force
(FATF) have more robust regulatory
environments representing lowers risks.
(b) Institutions should review
pronouncements from regulatory agencies
and international bodies, such as the FATF,
to evaluate the degree of risk presented
by the jurisdiction in which the CBC is
based and/or in which its ultimate parent
is headquartered.
Clients Ownership and Management
Structures:
(a) location of owners;
(b) their corporate legal form;
APP. 52c
05.12.31
(c) transparency or ownership structure;

(d) location and experience of
management; and
(e) involvement of politically exposed
persons (PEPs) in the management or
ownership.
Clients Business and Customer Base:
(a) type of businesses the CBC engages
in;
(b) type of markets the CBC serves;
(c) involvement in certain business
segments internationally recognized as creating particular vulnerability to money laundering, corruption or terrorist financing; and
(d) substantial part of business income
derived from higher risk clients (i.e., clients
of a CBC that may be involved in activities
or are connected to jurisdictions that are
identified by credible sources as activities
or countries being especially susceptible to
money laundering).
d. The institution may give the
appropriate weight to each risk factor as it
deems necessary.
4. Due diligence standards
a. All CBC should be subjected to
appropriate due diligence that will seek to
assure that an institution is comfortable
conducting business with a particular client
given the clients risk profile.
b. The institution may rely on
publicly available information obtained
either from the CBC or reliable third parties
(e.g., regulators, exchanges) to satisfy its due
diligence requirements.
c. Countries may permit financial
institutions to rely on intermediaries or
other third parties to perform the Customer
Due Diligence (CDD) process or to
introduce business, provided that the
criteria set out below are met. Where such
reliance is permitted, the ultimate
responsibility for customer identification
and verification remains with the financial
institution relying on the third party.
The criteria that should be met are as

follows:
(1) A financial institution relying upon
a third party should immediately obtain the
necessary information concerning the
elements of the CDD process. Financial
institutions should take adequate steps to
satisfy themselves that copies of
identification data and other relevant
documentation relating to the CDD
requirements will be made available
from the third party upon request without
delay.
(2) The financial institution should
satisfy itself that the third party is regulated
and supervised for, and has measures in
place to comply with CDD requirements.
d. The institution should consider the
following elements
(1) CBC domicile and organization
(a) jurisdiction where the CBCs
ultimate parent is incorporated and/or
headquartered;
(b) particular operating unit wishing to
maintain relationship; and
(c) corporate legal form of CBC.
(2) CBC ownership
(a) publicly held
(3) Shares traded on an exchange in a
jurisdiction with an adequately recognized
regulatory scheme; and
(4) Identity of any significant
controlling interests.
(a) or privately owned
(5) CBC executive management
(a) structure and experience; and
(b) existence of PEP.
(6) CBCs Business
(a) types of financial products and
services; and
(b) geographic markets reached.
(7) Products and Services Offered
(a) business purpose for the
relationship with the CBC; and
(b) products and services offered to the
CBC.
(8) Regulatory status and history
APP. 52c
05.12.31
(a) primary regulatory body supervising

CBC; and
(b) based on publicly available
materials, any criminal or adverse
regulatory action in the recent past.
(9) CBC anti-money laundering
controls
(a) nature and extent of application.
(10) No business arrangements with
shell banks
(a) the institution should confirm that
CBC will not use the institutions products
and services to engage in business with
shell banks.
(11) CBC visit
(a) The institution should visit CBC
premises prior to or within a reasonable
period of time; and
(b) The institution confirms that CBC
is not a shell bank.
5. Enhanced due diligence
The enhanced due diligence process
will involve further consideration of the
following elements designed to assure the
institution has secured a greater level of
understanding:
a. Ownership and management
(1) Significant controlling interests,
owners sources of wealth and background,
reputation in the market place, and recent
material ownership changes.
(2) Detailed data on the experience of
each member of executive management
and recent material changes in the
executive management structure.
b. Politically Exposed Person (PEP)
involvement.
Financial institutions should, in relation
to PEP, in addition to performing normal
due diligence measures:
(1) Have appropriate risk management systems to determine whether the
customer is a PEP.
(2) Obtain senior management approval
for establishing business relationships with
such customers.
(3) Take reasonable measures to

establish the source of wealth and source
of funds.
(4) Conduct enhanced ongoing
monitoring of the business relationship.
c. CBC anti-money laundering controls
(1) Quality of anti-money laundering
and client identification controls
(2) Recognition by CBC senior
management of the importance of controls
d. Downstream correspondent clearing
(1) Downstream correspondent clearer
is a CBC who receives correspondent
banking services from an institution and
itself provides corresponding banking
services to other financial institutions in the
same currency as the account it maintains
with the institution.
(2) If CBC is also downstream
corresponding clearer, the institution
should (1) take steps to understand the
types of financial institutions to whom the
CBC offers the downstream banking
services, and (2) consider the degree to
which the CBC examines the anti-money
laundering controls of the financial
institutions to whom it offers those services.
6. Shell Banks
a. A shell bank is a bank that (a) does
not conduct business at a fixed address in
a jurisdiction in which the shell bank is
authorized to engage in banking activities;
(b) does not employ one or more
individuals on a full time business at this
fixed address; (c) does not maintain
operating records at this address, and (d) is
not subject to inspection by the banking
authority that licensed it to conduct banking
activities.
b. Financial institutions should refuse
to enter into, or continue, a correspondent
banking relationship with shell banks.
Financial institutions should also guard
against establishing relations with respondent
foreign financial institutions that permit their
accounts to be used by shell banks.
APP. 52c
05.12.31
7. Branches, subsidiaries and affiliates

a. In situations involving branches,
subsidiaries or affiliates, the institution
should consider the parent of the CBC in
determining the extent of required due
diligence.
b. If CBC is an affiliate not
substantively and effectively controlled by
the parent, the institution should review
both the parent and the CBC.
8. Updating Client Files
The institutions policies and procedures
should require that the CBC information is
reviewed and updated on a periodic basis
or when a material change in the risk

profile of the CBC occurs.
9. Monitoring and reporting of
suspicious activities
The institutions policies and
procedures on the monitoring and
reporting of suspicious activities should
include correspondent banking activity.
10. Integration with anti-money
laundering program
These guidelines shall form part of the
institutions wider anti-money laundering
program.
APP. 53
05.12.31
CERTIFICATION OF COMPLIANCE WITH

ANTI-MONEY LAUNDERING REGULATIONS
CERTIFICATION
Pursuant to the provisions of Section 2 of BSP Circular No. 279 dated 02 April 2001, we
hereby certify:
1.
That we have monitored (Name of Bank)s compliance with R.A. No. 9160 (AntiMoney Laundering Act of 2001) as well as with BSP Circular Nos. 251, 253, 259
and 302;
2.
That the Bank is complying with the required customer identification, documentation
of all new clients, and continued monitoring of customers activities;
3.
That the Bank is also complying with the requirement to record all transactions and
to maintain such records including the record of customer identification for at least
five (5) years;
4.
That the Bank does not maintain anonymous or fictitious accounts; and
5.
That we conduct regular anti-money laundering training sessions for all bank officers
and selected staff members holding sensitive positions.
(Name of President or officer of equivalent rank)
(Name of Compliance Officer)
SUBSCRIBED AND SWORN to before me, this _____day of _____________, affiants

exhibiting to me their Residence Certificates as follows:
Name
Doc. No. _________;

Page No. _________;
Book No. _________;
Series of 20___.
Community
Tax Cert. No
Date/Place
Issued
Notary Public
APP. 54
05.12.31
DETAILS ON THE COMPUTATION OF QUARTERLY INTEREST PAYMENTS

CREDITED TO THE DEMAND DEPOSIT ACCOUNTS OF BANKS'
LEGAL RESERVE DEPOSITS WITH BSP
The following are the pertinent
information on the computation of quarterly
interest payments credited to the demand
deposit accounts (DDAs) of banks legal
reserve deposits with BSP.
1. BSP Circular No. 262, as amended,
(for regular DDA) and Memorandum to All
Banks and Other Financial Intermediaries
Performing Trust, Other Fiduciary Business
and Investment Management Activities (for
CTF and TOFA), as amended, both dated
18 October 2000 state that computation of
quarterly interest payments due on banks/
non-banks legal reserve deposits with the
BSP is based on the lower of their
outstanding daily DDA balance and forty
percent (40%) of the reserve requirement
(excluding liquidity reserve). Interest rate
is at four percent (4%) per annum and
interest base at 365 days.
2. The daily DDA balance used in
the computation of interest may be
obtained from the semi-monthly demand
deposit statements of account balances
that are available electronically to banks
through EFTIS (for PhilPaSS participants)
or monthly through the DDA statements
sent by mail (for non-PhilPaSS

participants).
3. The data on reserve requirements
are based on the institutions Consolidated
Daily Report of Condition (CDRC)
(CBP7.16.01) submitted to the SRSO on a
weekly basis that includes Schedule of
Required and Available Reserves on
Deposits and Deposit Substitutes
Liabilities. Unless SRSO furnishes an
amended data, the banks computation in
the Schedule is used in determining the
forty percent (40%) of the reserve
requirement that shall be compared with
the outstanding daily balance, in arriving
at the amount of interest credit.
4. The interest credit to each DDA is
supported by a credit advice which
indicates the period covered by the
payment. For PhilPaSS participants, the
credit advices are released through their
authorized bank representatives together
with the cancelled checks drawn against
the institutions DDA with the BSP while
for non-PhilPaSS participants, the credit
advices are sent by mail together with their
DDA Statement of Accounts.
APP. 55
05.12.31
SME UNIFIED LENDING OPPORTUNITIES FOR NATIONAL GROWTH (SULONG)

BANK ACCREDITATION APPLICATION FOR RURAL AND THRIFT BANKS
ELIGIBILITY AND DOCUMENTARY REQUIREMENTS
Requirements
Documents to be submitted
1. CAMELS rating should be at least 3.0
Latest report of BSP bank examination
2. Compliance with the ten percent (10%)

maximum ratio of DOSRI past due loans
Copy of quarterly report submitted to BSP
3. No loan with LBP and BSP, Quedancor,

PBSP, SBGFC, PhilExim, DBP, and SSS in
arrears. Rediscounting privileges with BSP
and LBP not suspended
Credit investigation report by GFI credit and

appraisal management unit or department
4. Past due loans and items in litigation is not

in excess of the industry average plus two
percent (2%) but not to exceed twenty five
percent (25%) (based on latest quarterly report
of BSP)
Copy of the Consolidated Statement of Condition

and Income & Expense as submitted to BSP
5. Not deficient in loan loss provisions/reserves
Certification from BSP
6. Ratio of acquired assets to total assets is not

more than industry average plus two percent
(2%) but not to exceed fifteen percent (15%)
Copy of the latest computation of the risk-based

capital adequacy ratio cover for credit risk under
Sec. X116
7. Positive results of operations in the last

preceding calendar year. If such is negative,
the average income of the past two (2) or
three (3) years should at least be positive
Copy of latest interim financial statements as

submitted to BSP
8. Not deficient in bank reserves for the last

six (6) months preceding the filing of
application
Copy of weekly report submitted to BSP or BSP

certification
9. Ratio of accrued interest receivables to

surplus (free) plus undivided profits is less
than 100%
Copy of latest interim financial statements as

submitted to BSP
10. The bank is owned and managed by the same

persons (key officers) at least for the last two
(2) years
Applicants records
11. No derogatory information gathered on the

officers and directors of the bank
GFI Credit and Appraisal Management Unit or

Department
12. Compliance with corporate governance
Applicants reply to questionnaire on comparison

of BSP mandated practices with actual practices
APP. 55
05.12.31
SME UNIFIED LENDING OPPORTUNITIES FOR NATIONAL GROWTH

(SULONG)
LENDING FEATURES OF SHORT-TERM LOANS
Export Financing
(Export Packing Credit)
Credit Line
(Temporary Working Capital)
Target Industries
All industries except trading of

imported goods, of liquor and
cigarettes, extractive industries
All industries except trading of

imported goods, of liquor and
cigarettes, in extractive industries
Eligible
Enterprises
At least sixty percent (60%)

Filipino-owned whose assets are
not more than P100 million,
excluding the value of the land
At least sixty percent (60%) Filipinoowned whose assets are not more
than P100 million, excluding the
value of the land
Maximum
Financing
Seventy percent (70%) of the

value of LC/PO; maximum of P5.0
million
Seventy percent (70%) of working

capital requirement; maximum of
P5.0 million
Interest Rate**
Nine percent (9.00%)
Nine percent (9.00%)
Repayment Term
Maximum of one (1) year
Maximum of one (1) year
Collateral*
Post dated check

Registered/Unregistered REM/
CHM
Assignment of LC or PO
Assignment of life insurance
Guarantee cover
Post dated check

Registered/Unregistered REM/CHM
Guarantee cover
Corporate Guarantee (if franchisee)
Assignment of lease rights (if
franchisee)
Evaluation and
Service Fees
P2,000 for every P1 million

Plus front-end fee of one-half of
one percent ( of 1%) of approved
loan
P2,000 for every P1 million

Plus front-end fee of one-half of one
percent ( of 1%) of approved loan
Loan Purpose
Financial Profile of the Borrower:

Debt-Equity Ratio
At most 80:20 after the loan

At most 70:30 (if franchisee)
Profitability
Positive income for last year. (If

past years income is negative, the
average income of past two (2) or
three (3) years should be positive)
Positive income for last year. (If past

years income is negative, the
average income of past two (2) or
three (3) years should be positive)
Other Ratios
Based on industry standards
* The Program will not decline a loan only on the basis of inadequate collateral. However, the borrower must
be willing to mortgage all available business and personal collateral, including assets to be acquired from
the loan to secure the borrowing.
** Applicable to all loan applications with complete requirements received up to 30 June 2003. A GFI committee
shall be set up to review the pricing thereafter on a quarterly basis.
APP. 55
05.12.31
SME UNIFIED LENDING OPPORTUNITIES FOR NATIONAL GROWTH

(SULONG)
LENDING FEATURES OF LONG-TERM LOANS
Loan Purpose
a) Purchase of equipment
b) Building construction
c) Purchase of lot
d) Purchase of inventories permanent
working capital
Target Industries
All industries except trading of imported

goods, of liquor and cigarettes, in extractive industries and in housing projects
Eligible Enterprises
At least sixty percent (60%) Filipino-owned

whose assets are not more than P100.0
million, excluding the value of the land
Maximum Financing
Eighty percent (80%) of the incremental

project cost; maximum of P5.0 million
Interest Rate
3-year T-Bond rate + 2% (3-year loan)*

5-year T-Bond rate + 2% (5-year loan)*
Repayment Term
Maximum of five (5) years, inclusive of

maximum one (1) year grace period on
principal monthly amortization
Collateral**
Post dated check

Registered/Unregistered REM/CHM
Corporate guarantee (if franchisee)
Assignment of lease rights (if franchisee)
Evaluation and Service Fees
P2,000 for every P1.0 million

Plus front-end fee of of 1% of approved
loan and commitment fee of 125% of
unavailed balance
* Based on yield of bonds with three (3) or five (5) year remaining loan tenor as per MART 1 of Bloomberg. As
of 22 January 2003, MART 1-Bloomberg, 3-year term loan has a yield of 9.25% and 5 year term loan has a
yield of 10.75%. With a premium of 2%, the 3-year rate will be set at 11.25% and the 5-year rate at 12.75%.
** The Program will not decline a loan only on the basis of inadequate collateral. However, the borrower must
be willing to mortgage all available business and personal collateral, including assets to be acquired from the
loan to secure the borrowing.
APP. 55
05.12.31
Financial Profile of the Borrower:

Debt-Equity Ratio

At most 70:30 (if franchisee)
Profitability
Positive income for last year. (If past years

income is negative, the average income
of past two (2) or three (3) years should be
positive)
Other Ratios
APP. 56
06.12.31
TRANSFER/SALE OF NON-PERFORMING ASSETS TO A

SPECIAL PURPOSE VEHICLE OR TO AN INDIVIDUAL
The following procedures shall govern
the transfer/sale of NPAs to a SPV or to an
individual that involves a single family
residential unit, or transactions involving
dacion en pago by the borrower or third
party of a non-performing loan (NPL), for
the purpose of obtaining the COE which
is required to avail of the incentives
provided under R.A. No. 9182, as
amended by R.A. No. 9343.
a. Prior to the filing of any application
for transfer/sale of NPAs, a bank shall
coordinate with the BSP through the SDC
and the appropriate department of the SES
to develop a reconciled and finalized
master list of its eligible NPAs.
For this purpose, banks were requested
to submit a complete inventory of their
NPAs in the format prescribed under
Circular Letter dated 07 January 2003. Only
NPAs included in the master list that meet
the definition of NPA, NPL and ROPA
under R.A. No. 9182 may qualify for the
COE. The banks shall be provided a copy
of their reconciled and finalized master list
for their guidance.
Only banks which have not yet
submitted their master list of NPAs and
intend to avail of the incentives and fee
privileges of the SPV Act 2nd Phase
implementation are allowed to submit a
complete inventory of their NPAs in the
format prescribed under Circular Letter
dated 07 January 2003. Banks which have
already submitted to BSP a master list of
NPAs as of 30 June 2002 in the 1st Phase
implementation of the SPV Act will not
be allowed to submit a new/amended
master list.
b. An application for eligibility of
specific NPAs shall be filed in writing (hard
copy) by the selling bank with the BSP

through the appropriate department of the
SES for each proposed transfer of asset/s.
Although no specific form is prescribed, the
applicant shall describe in sufficient detail
its proposed transaction, identifying its
counterparty/ies and disclosing the terms,
conditions and all material commitments
related to the transaction.
c. For applications involving more
than ten (10) NPA accounts, the list of NPAs
to be transferred/sold shall be submitted in
soft copy (by electronic mail or diskette) in
excel format using the prescribed data
structure/format for NPLs and ROPAs to the
applicant bank at the following addresses:
SEDI-SPV@bsp.gov.ph
SEDII-SPV@bsp.gov.ph
SEDIII-SPV@bsp.gov.ph
SEDIV-SPV@bsp.gov.ph
For applications involving ten (10) NPA
accounts or less, it is preferable that the list
be submitted also in soft copy. The
applicant may opt to submit the list in hard
copy, provided all the necessary information
shown in the prescribed data structure that
are relevant to each NPL or ROPA to be
transferred/sold will be indicated. The list
to be submitted in hard copy would be ideal
for the sale/transfer of NPAs that involve one
(1) promissory note and/or one (1) asset item
per account.
d. The application shall be
accompanied by a written certification
signed by a senior officer with a rank of at
least senior vice president or equivalent,
who is authorized by the board of directors,
or by the country head, in the case of foreign
banks, that:
APP. 56
06.12.31
(1) the assets to be sold/transferred are

NPAs as defined under the SPV Act of 2002;
(2) the proposed sale/transfer of said
NPAs is under a true sale;
(3) the notification requirement to the
borrowers has been complied with; and
(4) the maximum ninety (90)-day period
for renegotiation and restructuring has been
complied with.
Items "3" and "4" above shall not apply
if the NPL has become a ROPA after 30
June 2002.
e. In the case of dacion en pago by
the borrower or a third party to a bank, the
application for COE on the NPL being
settled shall be accompanied by a Deed of
Dacion executed by the borrower, the third
party, the registered owner of the property
and the bank.
f. The appropriate department of the
SES may conduct an on-site review of the
NPLs and ROPAs proposed to be
transferred/sold. After the on-site review,
the application for transfer/sale shall be
submitted to the Deputy Governor, SES for
approval and for the issuance of the
corresponding COE.
g. Upon the issuance of the SPV
Application Number by the BSP, a bank shall
be charged a processing fee, as follows:
(1) 1/100 of one percent (1%) of the
book value of NPAs transferred or the
transfer price, whichever is higher, but not

below P25,000 if the transfer is made to
an SPV;
(2) 1/100 of 1% of the book value of
the NPL but not below P5,000 in case of a
dacion en pago arrangement by an
individual or corporate borrower;
(3) P5,000 if the transfer involves a
single family residential unit to an
individual.
h. An SPV that intends to transfer/sell
to a third party an NPA that is covered by
a COE previously issued by the BSP shall
file an application for such transfer/sale
with the SEC which shall issue the
corresponding COE based on the data base
of COEs maintained at the BSP.
An individual who intends to transfer/
sell an NPA that involves a single family
residential unit he had acquired that is
covered by a COE shall file an application
for another COE with the BSP through the
bank from which the NPA was acquired.
The individual shall indicate in his
application the previous COE issued for
the NPA he had acquired and the name,
address and TIN of the transferee/buyer
of the NPA. A processing fee of P5,000
shall be collected by BSP upon issuance
of the SPV Application Number by the
BSP.
(As amended by M-2006-001 dated 11 May 2006)
APP. 56a
05.12.31
ACCOUNTING GUIDELINES ON THE SALE OF NON-PERFORMING ASSETS TO

SPECIAL PURPOSE VEHICLES AND TO QUALIFIED INDIVIDUALS FOR
HOUSING UNDER THE SPECIAL PURPOSE VEHICLE (SPV) ACT OF 2002
General Principles
These guidelines set out alternative
regulatory accounting treatment of the sale
of non-performing assets (NPAs) by banks
and other financial institutions (FIs) under
BSP supervision to Special Purpose Vehicles
(SPVs) and to qualified individuals for
housing under R.A. No. 9182, otherwise
known as The Special Purpose Vehicle
(SPV) Act of 2002.
The guidelines recognize that banks/FIs
may need temporary regulatory relief, in
addition to tax relief under the SPV Law,
particularly in the timing of recognition of
losses, so that they may be encouraged to
maximize the sale of their NPAs even at
substantial discounts: Provided, however,
That in the interest of upholding full
transparency and sustaining market
discipline, banks/FIs that avail of such
regulatory relief shall fully disclose its
impact in all relevant financial reports.
The guidelines cover the following
areas:
(1) Derecognition of NPAs sold/
transferred to an SPV and initial recognition
of financial instruments issued by the SPV
to the selling bank/FI as partial or full
settlement of the NPAs sold/transferred to
the SPV;
(2) Subsequent measurement of the
carrying amount of financial instruments
issued by the SPV to the selling bank/FI;
(3) Capital adequacy ratio (CAR)
calculation; and
(4) Disclosure requirement on the
selling bank/FI.
The sale/transfer of NPAs to SPV
referred to in these guidelines shall be in
the nature of a true sale pursuant to
Section 13 of the SPV Law and its

Implementing Rules and Regulations.
I. Derecognition of NPAs Sold and Initial
Recognition of Financial Instruments
Received
A bank/FI should derecognize an NPA
in accordance with the provisions of PAS
39 (for financial assets such as loans and
securities) and PASs 16 and 40 (for nonfinancial assets such as land, building and
equipment).
A sale of NPA qualifying as a true sale
pursuant to Section 13 of the SPV Law and
its Implementing Rules and Regulations but
not qualifying for dercognition under PASs
39, 16 and 40 may nonetheless, be
derecognized. Provided: That the bank/FI
shall disclose such fact, in addition to al
other disclosures provided in this
Memorandum.
On derecognition, any excess of the
carrying amount of the NPA (i.e., net of
specific allowance for probable loss after
booking the BSP recommended valuation
reserve) over the proceeds received in the
form of cash and/or financial instruments
issued by the SPV represents an actual loss
that should be charged to current periods
operations.
However, a bank/FI may use any existing
specific allowance for probable losses on
NPA sold:
(1) to cover any unbooked (specific/
general) allowance for probable losses; and
(2) to apply the excess, if any, as
additional (specific/general) allowance for
probable losses,
on remaining assets, in which case the
carrying amount of the NPA (which is
APP. 56a
05.12.31
compared with the proceeds received for

purposes of determining the actual loss) shall
be the gross amount of the NPA: Provided,
That the use of such existing specific
allowance for probable losses on the NPA
sold as provisions against remaining assets
shall be properly disclosed
The loss may, moreover, be booked
under Deferred Charges account which
should be written down over the next ten
(10) years based on the following schedule:
End of Period From
Date of Transaction
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Cumulative Write-down
of Deferred Charges
5%
10%
15%
25%
35%
45%
55%
70%
85%
100%
Provided, That the staggered booking of

actual loss on sale/transfer of the NPA shall
be properly disclosed.
In case the face amounts of the financial
instruments exceed the excess of the
carrying amount of the NPA over the cash
proceeds, the same shall be adjusted by
setting up specific allowance for probable
losses so that no gain shall be recognized
from the transaction.
The carrying amount of the NPA shall
be initianlly assumed to be the NPA's fair
value. The excess of the carrying amount
of the NPA over the cash proceeds or the
face amounts of the financial instruments,
whichever is lower, shall then be the
initial cost of financial instruments
received.
Banks/FIs shall book such financial
instruments under the general ledger
account "Unquoted Debt Securities
Classified as Loans" for debt instruments or
"Investments in Non-Marketable Equity

Securities (INMES)" for equity instruments.
Consolidation of SPV with Bank/FI
Even if the sale of NPAs to SPV qualifies for
derecognition, a bank/FI shall consolidate
the SPV in the audited consolidated
financial statements when the relationship
between the bank/FI and the SPV indicates
that the SPV is controlled by the bank/FI in
accordance with the provisions of SIC
(Standing Interpretations Committee) -12
Consolidation - Special Purpose Entities."
II. Subsequent Measurement of Financial
Instruments Received
(a) A bank/FI should assess at end of
each fiscal year or more frequently whether
there is any objective evidence or indication
based on analysis of expected net cash
inflows that the carrying amount of
financial instruments issued by an SPV may
be impaired. A financial instrument is
impaired if its carrying amount (i.e., net of
specific allowance for probable loss) is
greater than its estimated recoverable
amount. The estimated recoverable amount
is determined based on the net present value
of expected future cash flows discounted
at the current market rate of interest for a
similar financial instrument.
In applying discounted cash flow
analysis, a bank/FI should use the discount
rate(s) equal to the prevailing rate of return for
financial instruments having substantially the
same terms and characteristics, including the
creditworthiness of the issuer.
(b) Alternatively, the estimated
recoverable amount of the financial
instruments may be determined based on
an updated estimate of residual net present
value (NPV) of the issuing SPV.
The estimated recoverable amount of
the financial instrument shall be the present
value of the excess of expected cash inflows
(e.g., proceeds from the sale of collaterals
and/or ROPAs, which in no case shall
APP. 56a
05.12.31
exceed the contract price of the NPAs sold/

transferred, interest on the reinvestment of
proceeds) over expected cash outflows (e.g.,
direct costs to sell, administrative expenses,
principal and interest payments on senior
obligations, interest payments on the
financial instruments).
The fair market value of the collateral
and/or ROPAs should under this method
be considered only under the following
conditions:
(1) The appraisal was performed by an
independent appraiser acceptable to the
BSP; and
(2) The valuation of the independent
appraiser is based on current market
valuation of similar assets in the same
locality as underlying collateral rather than
other valuation methods such as
replacement cost, etc.
The assumptions regarding the timing
of sale, the direct cost to sell, administrative
expenses, reinvestments rate and current
market rate should be disclosed in sufficient
detail in the audited financial statements.
The applicable discount rate should be
based on the implied stripped yield of the
Treasury note or bond for the tenor plus an
appropriate risk premium.
(c) In case of impairment, the carrying
amount of the financial instrument should be
reduced to its estimated recoverable amount,
through the use of specific allowance for
probable losses account that should be
charged to current periods operations.
However, at the end of the fiscal year the sale/
transfer of NPA occurred, such setting up of
specific allowance for probable losses account
may be booked on a staggered basis over the
next ten (10) years based on the following
schedule:
End of Period From
Date of Transaction
Cumulative Booking of
Allowance for
Probable Losses
Year 1
5%
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
10%
15%
25%
35%
45%
55%
70%
85%
100%
Provided, That the staggered booking of

impairment, if any, upon remeasurement of
financial instruments at end of the fiscal year
the sale/transfer of the NPA occurred shall
be properly disclosed.
After initially recognizing an impairment
loss, the bank/FI should review the financial
instruments for future impairment in
subsequent financial reporting date.
If in a subsequent period, the estimated
instrument decreases, the bank/FI should
immediately book additional allowance for
probable losses corresponding to the
decrease. However, a bank/FI may stagger
the booking of such additional allowance
for probable losses in such a way that it
catches up and keeps pace with the original
deferral schedule (e.g., if the impairment
occurred in Year 8, a bank/FI should
immediately book seventy percent (70%) at
end of Year 8, and thereafter, additional
fifteen percent (15%) each at end of Year 9
and Year 10, respectively): Provided, That
the staggered booking of impairment, if any,
upon remeasurement of financial
instruments shall be properly disclosed.
If in a subsequent period, the
estimated recoverable amount of the
financial instrument increases exceeding
its carrying amount, and the increase can
be objectively related to an event
occurring after the write-down, the writedown of the financial instruments should
be reversed by adjusting the specific
allowance for probable losses account.
The reversal should not result in a carrying
APP. 56a
05.12.31
amount of the financial instrument that exceeds

what the cost would have been had the
impairment not been recognized at the date
the write-down of the financial instrument is
reversed. The amount of the reversal should
be included in the profit for the period.
Illustrative accounting entries for
derecognition of NPAs, initial recognition of
financial instruments issued by the SPV, and
subsequent measurement of the carrying
amount of the financial instrument are in
Annex A.
III. Capital Adequacy Ratio (CAR)
Calculation
Banks/FIs may, for purposes of
calculating capital adequacy ratio (CAR),
likewise stagger over a period of seven (7)
years the recognition of:
(1) actual loss on sale/transfer of NPAs;
and
(2) impairment, if any, upon remeasurement of financial instruments, in
End of Period From
Date of Transaction
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Cumulative Recognition
of Losses/Impairment
5%
10%
15%
25%
35%
45%
55%
70%
85%
100%
The financial instruments received by

the selling bank/FI shall be risk weighted in
accordance with Sec. X116.
A bank/FI may declare cash dividend on
common and/or preferred stock
notwithstanding deferred recognition of loss
duly authorized by the BSP.
IV. Disclosure
Banks/FIs should disclose as
Additional Information in periodic
reports submitted to the BSP, as well as
in published reports and audited financial
statements and all relevant financial
reports the specific allowance for
probable losses on NPAs sold used as
provisions against remaining assets, the
staggered recognition of actual loss on
sale/transfer of NPAs and/or impairment,
if any, on the remeasurement of financial
instruments.
In addition, banks/FIs which receive
financial instruments issued by the SPVs
as partial or full settlement of the NPAs
transferred to the SPVs should disclose
in the audited financial statements the
method used and the significant
assumptions applied in estimating the
instruments, including the timing of the
sale, the direct cost to sell, administrative
expenses, reinvestment rate, current
market rate, etc. (The pro-forma
disclosure requirements on the staggered
recognition of actual loss on sale/transfer
of NPAs and/or impairment, if any, on the
remeasurement of financial instruments
are shown in Annex B.)
120
20
100
30
100
15
120
20
100
0
120
15
20
100
30
0
15
Part Cash, Part

Financial
Instruments 1
(30,100)
120
Financial
Instruments
Only
(0, 120)
120
20
100
30
70
15
20
100
30
90
15
Part Cash, Part

Financial
Instruments
(30, 70)
120
Part Cash, Part

Financial
Instruments2
(30, 90)
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash proceeds.
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the cash proceeds.
Loans/ROPAs, gross
Allowance for probable
losses
Loans/ROPAs, net
Cash payment received
Financial instruments
received
Unbooked valuation
reserves on remaining assets
Assumptions:
(30, 0)
Cash Only
Mode of Payment
(Cash, Financial Instruments)
ILLUSTRATIVE ACCOUNTING ENTRIES TO RECORD SALE OF NPAs TO SPV UNDER THE SPV LAW OF 2002
UNDER DEFERRED RECOGNITION OF LOSS/IMPAIRMENT OF FINANCIAL INSTRUMENTS
APP. 56a
05.12.31
Annex A
APP. 56a
05.12.31
Cash Only
Accounting Entries
1 Allowance for Probable Losses
NPAs sold
Allowance For Probable LossesRemaining Assets
(For unbooked provisions)
(As additional provisions)
(30, 0)
Part Cash,
Part Cash, Part Cash,
Part
Part
Financial
Part
Financial
Instruments Financial
Financial
Instruments 1 Instruments 2 Instruments
Only
(30, 100)
(30, 90)
(0, 120)
(30, 70)
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
20
20
20
15
5
15
5
20
20
15
5
15
5
15
5
To record the reclassification of

existing specific allowance for
credit losses on NPAs sold as
provisions against remaining
assets.
2 Cash
Unquoted Debt Securities
Classified as Loans/INMES
Deferred Charges
Loans/ROPAs
Allowance for Credit Losses Unquoted Debt Securities
30
30
30
30
0
90
120
0
100
0
90
0
70
20
120
120
120
120
120
10
To record the sale of NPAs,

receipt of cash and/or financial
instruments, and deferred
recognition of loss, if any.
3 Amortization Deferred Charges
Deferred Charges
xxx
0
xxx
xxx
0
0
xxx
To record annual write down of

deferred charges based on
schedule of staggered booking of
losses.
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash
proceeds.
2
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the
cash proceeds.
1
APP. 56a
05.12.31
Accounting Entries
Part Cash,
Part Cash,
Part Cash,
Part
Part
Financial
Part
Financial
Financial
Cash Only Instruments
Financial
Only
Instruments 1 Instruments 2 Instruments
(30, 90)
(0, 120)
(30, 70)
(30, 0)
(30, 100)
Debit Credit Debit Credit Debit Credit Debit Credit Debit Credit
Provision for Credit Losses

Allowance for Credit Losses
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
To record annual build up of

allowance for credit losses on
financial instruments based on
schedule of staggered booking of
allowance for credit losses.
Face amounts of financial instruments exceed the excess of the gross amount of the NPAs over the cash
proceeds.
2
Face amounts of financial instruments do not exceed the excess of the gross amount of the NPAs over the
cash proceeds.
1
APP. 56a
05.12.31
Annex B
PRO-FORMA DISCLOSURE REQUIREMENT

A.
Statement of Condition
Particulars
Qualified for
Derecognition
Under PFRS/PAS
Amount
Not Qualified for
Derecognition
Under PFRS/PAS
Total
Additional Information:
NPAs sold, gross
Allowance for credit losses (specific) on NPAs
sold
xxx
xxx
xxx
xxx
xxx
xxx
Allowance for credit losses (specific) on NPAs

sold applied to:
Unbooked allowance for credit losses:
Specific
General
Additional allowance for credit losses
Specific
General
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Financial instruments received, gross

Less: Allowance for credit losses (specific)
Carrying amount of financial instruments received
Less: Unbooked allowance for credit losses
(specific)
Adj. carrying amount of financial instruments
received
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Deferred charges, gross

Less: Deferred charges written down
Carrying amount of deferred charges
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Cash received
B.
Statement of Income and Expenses
Particulars
Qualified for
Derecognition
Under PFRS/PAS
Amount
Not Qualified for
Derecognition
Under PFRS/PAS
Additional Information:
Net income after income tax
(with regulatory relief)
Less: Deferred charges not yet written down
Unbooked allowance for credit losses
(specific) on financial instruments received
Total deduction
less: Deferred tax liability, if applicable
Net deductions
Total
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
xxx
Net income/loss after income tax

(without regulatory relief)
APP. 56b
08.12.31
SIGNIFICANT TIMELINES RELATIVE TO THE IMPLEMENTATION OF

R.A. NO. 9182, ALSO KNOWN AS THE SPECIAL PURPOSE VEHICLE ACT,
AS AMENDED BY R.A. NO. 9343
A. Filing of Applications with the SEC for
Establishing an SPV
Under Section 6 of R.A. No. 9182, as
amended by R.A. No. 9343, applications
for the establishment and registration of an
SPV shall be filed with the SEC within
eighteen (18) months from the effectivity
of the amendatory Act (i.e., up to 14
November 2007).
B. Sale/Transfer of NPAs Entitled to Tax
Exemptions and Fee Privileges
The following transactions enumerated
as Items 1 to 6 of Section 15 of the IRR
of the SPV Law are entitled to the tax
exemptions and fee privileges under the
same Section only if such transactions occur
within two (2) years from the effectivity of
the amendatory Act or from 14 May 2006
to 14 May 20081:
1. The transfer of the NPL by the bank
to an SPV;
2. The transfer of the ROPA by the

bank to an SPV;
3. The dation in payment (dacion en
pago) of the NPL by the borrower to the bank;
4. The dation in payment (dacion en
pago) of the NPL by a third party, on behalf
of the borrower, to the bank;
5. The transfer of the NPL (secured by
a real estate mortgage on a residential unit)
by the bank to an individual; and
6. The transfer of the ROPA (single family
residential unit) by the bank to an individual.
For purposes of determining whether a
transaction occurred within the two (2)-year
period or from 14 May 2006 to 14 May
2008; relevant documents to support the
application (e.g., Asset Sale and Purchase
Agreement, Deed of Assignment, Deed of
Dation, etc.) should be notarized within the
said two (2)-year period.
(M-2007 -013 dated 11 May 2007 as amended by M-2008-014
dated 17 March 2008)
The Monetary Board authorized the SES to accept applications for Certificate of Eligibility (COE) until 13 June 2008, or
up to 30 days after the 14 May 2008 deadline.
1
APP. 57
05.12.31

Circular No. 402
REVISED GUIDELINES ON THE FLOTATION OF BONDS BY

LOCAL GOVERNMENT UNITS (LGUS) [WITHOUT
NATIONAL GOVERNMENT GUARANTEE]
Pursuant to Monetary Board Resolution
No. 1151 dated 14 August 2003, the following
guidelines shall govern the flotation of bonds
by local government units (LGUs) under R.A.
No. 7160 (Local Government Code of 1991)
and R.A. No. 7653 (New Central Bank Act)
dated 03 July 1993.
I.
Legal Basis
A. UNDER THE LOCAL GOVERNMENT

CODE OF 1991 (R.A. No. 7160)
Sec. 299. Bonds and Other Long-Term
Securities. Subject to the rules and
regulations of the Central Bank and the
Securities and Exchange Commission,
provinces, cities, and municipalities, are
hereby authorized to issue bonds,
debentures, securities, collaterals, notes
and other obligations to finance selfliquidating, income-producing development
or livelihood projects pursuant to the
priorities established in the approved local
development plan or the public
investment program. The Sanggunian
concerned shall, through an ordinance
approved by a majority of all its members,
declare and state the terms and conditions
of the bonds and the purpose for which
the proposed indebtedness is to be
incurred.
B. UNDER THE NEW CENTRAL BANK
ACT (R.A. No. 7653)
Section 123. Financial Advice on
Official Credit Operations. Before
undertaking any credit operation abroad,
the Government, through the Secretary of

Finance, shall request the opinion, in
writing, of the Monetary Board on the
monetary implications of the contemplated
action. Such opinions must similarly be
requested by all political subdivisions and
instrumentalities of the Government before
any credit operation abroad is undertaken
by them.
The opinion of the Monetary Board shall
be based on the gold and foreign exchange
resources and obligations of the nation and
on the effects of the proposed operation on
the balance of payments and on monetary
aggregates.
Whenever the Government, or any of
its political subdivisions or instrumentalities,
contemplates borrowing within the
Philippines, the prior opinion of the
Monetary Board shall likewise be requested
in order that the Board may render an
opinion on the probable effects of the
proposed operation on monetary aggregates,
the price level, and the balance of payments.
II. Coverage
This Circular shall govern the issuance
of bonds by provinces, cities, and
municipalities which do not carry the
guarantee of the National Government. The
LGUs concerned are advised to observe the
existing rules and regulations of other
government agencies (Department of
Finance, Securities and Exchange
Commission) relating to LGU bond
flotation.
APP. 57
05.12.31
III. Procedures and Documentary

Requirements
A. Manner of Request
An LGU proposal to issue bonds shall
be submitted to the BSP, through the
Secretary of Finance with a formal request
for the Monetary Boards opinion on the
probable effects of the proposed operation
on monetary aggregates, the price level, and
the balance of payments.
B. Documentary Requirements
The proposal shall be accompanied by
the following documents:
1. An original copy (or a certified true
copy) of the ordinance duly signed by the
appropriate officers pursuant to the Local
Government Code. In accordance with the
Local Government Code, the ordinance
authorizing the bond flotation should:
a) state the specific purpose/project(s)
for
which
the
proposed
indebtedness is to be incurred;
b) certify that the project(s) to be
financed by the bond flotation is/are
a self liquidating, income-producing
development or livelihood project/s
pursuant to the priorities established
in the approved local development
program or the public investment
program; and
c) state the terms and conditions of the
bond flotation, including sinking
fund or other funding arrangements.
2. A copy of the resolution designating
the LGU representative, including the
specific acts/services that the representative
has been authorized to perform.
3. A waiver letter on the confidentiality
of information (Annex 1) under Sections 2
and 3 of R.A. No. 1405, as amended,
authorizing all banks and financial
institutions under the supervision of the BSP
and which have transactions with the
concerned LGU to disclose to the BSP all
information pertaining to the deposits,
investments, loans and other transactions of

the concerned LGU (including the history
or status of the LGUs dealings with said
banks and financial institutions); the waiver
letter should be duly executed by the mayor
or governor as the case may be.
4. A Department of Finance (DOF)
certification that the debt service and
borrowing capacity of the proponent LGU
satisfies the legal requirements for a bond
issue.
C. Monetary Board Opinion
1. Upon submission of all the above
requirements, including other additional
data or information it may deem necessary
in the issuance of its opinion, and if the same
are found to be in order, the Monetary
Board shall, within a reasonable period of
time, render an opinion on the probable
effects of the proposed indebtedness on
monetary aggregates, the price level, and
the balance of payments.
2. The opinion of the Monetary Board
shall be forwarded to the concerned LGU
through the DOF.
3. The opinion of the Monetary Board
does not constitute an endorsement by the
BSP of the project since it is limited to the
assessment of the monetary implications of
the bond flotation. The said opinion is based
on: (a) the information contained in the
documents submitted by the LGU; and (b)
the assumption that the proceeds of the
bond flotation will actually be used for the
intended projects described in the
documents submitted. Hence, investors
shall be responsible for assessing the quality
of the bonds in terms of risks and returns.
D. Post-Issuance Reports
The LGU or its representative or its
trustee bank, as the case may be, shall
submit to the BSP a post flotation report
(Annex 2) that will indicate the actual
amount of the issue as well as the final terms
and conditions of the issue within 30 days
APP. 57
05.12.31
from the date of the flotation; and such other

reports as may be required by the BSP.
29 August 1994, are hereby repealed and

superseded accordingly.
IV. Sanctions
VI. Effectivity
Any violation of this Circular shall

be subject to the sanctions provided under
Sections 36 and 37 of R.A. No. 7653.
This Circular shall take effect fifteen

(15) days after its publication in two (2)
newspapers of general circulation.
V. Repealing Clause
All BSP regulations or issuances or
any provision thereof that may be
inconsistent with the provisions of this
Circular, including Circular No. 41, dated
_____________________________
Governor
4 September 2003
APP. 57
05.12.31
Annex 1
(Name of Local Government Unit)
(Address)
Hon. ______________________
Governor
Dear Gov. __________________:
This has reference to our request for the opinion of the Monetary Board (MB) on the
probable effects on monetary aggregates, price level and balance of payments of the proposed
bond flotation amounting to _______________________ by the Province/City/Municipality
of __________________.
Pursuant to the provisions of Sections 2 and 3 of Republic Act No. 1405 and other laws
relating to the secrecy of bank deposits, Resolution No. ___ dated _____________ (certified
true copy attached) was passed by the Province/City/Municipality of ____________ waiving
our rights to confidentiality of information by authorizing ____________________, our trustee
bank and all banks or financial institutions with which we have transactions to disclose to
the Bangko Sentral ng Pilipinas all information pertaining to the deposits, investments, loans
or other transactions including the history or status of our dealings with said banks or financial
institutions and for the BSP to make all inquiries as may be necessary regarding the same.
The BSP is likewise authorized to disclose and share any such information furnished or
obtained from said banks or financial institutions to the Department of Finance in relation to
the performance by said Department of its functions.
Thank you.
Very truly yours,
__________________
Mayor/Governor
__________ 20___
APP. 57
05.12.31
Annex 2
POST-BOND FLOTATION REPORT

Final Terms and Conditions of the Issue
Issuer
Bond Name/Label
Amount of Proposed Bond Flotation
Amount of Bonds Actually Sold
Purpose of Bonds
Issue Price
Interest Rate (Actual)
Date of Flotation
Term
Maturity Date
Grace Period
Denomination
Medium of Sale
Interest/Coupon Rate
Interest Payment Dates
Principal Payment Date
Collateral Guarantee/Security
Trustee Bank
Fiscal Agent
Trustee Fee
Underwriter
Underwriting Fee
Guanrantor
Guarantee Fee
Financial Advisor, if any
Financial Advisor Fee
List of Investors/Amount Purchased
Settlement Mode
APP. 58
07.12.31
GUIDELINES AND MINIMUM DOCUMENTARY REQUIREMENTS FOR

FOREIGN EXCHANGE (FX) FORWARD AND SWAP TRANSACTIONS
(Appendix to Subsecs. X602.16 X602.18)
The following is a list of minimum
documentary requirements for FX forward
and swap transactions. Unless otherwise
indicated, original documents* shall be
presented on or before deal date to banks.
A. FORWARD SALE OF FX TO COVER
OBLIGATIONS DELIVERABLE AND
NON-DELIVERABLE
1. FORWARD SALE OF FX TRADE
1.1 Trade transactions
1.1.1 Under Letters of Credit (LC)
a. Copy of LC opened; and
b. Accepted draft, or commercial
invoice/Bill of Lading
1.1.2 Under
Documents
against
Acceptances (DA)/Open Account (OA)
arrangements
a. Certification of reporting bank on the
details of DA/OA under Schedule 10 (Import
Letters of Credits Opened and DA/OA
Import Availments and Extensions) of FX
Form 1 (Consolidated Report on Foreign
Exchange Assets and Liabilities); and
b. Copy of commercial invoice;
In addition to the above requirements,
the bank shall require the customer to
submit a Letter of Undertaking that:
(i.) Before or at maturity date of the
forward contract, it (the importer) shall
comply with the documentation
requirements on sale of FX for trade
transactions under existing regulations;
and
(ii.) No double hedging has been
obtained by the customer for the covered
transactions.
1.1.3 Direct Remittance
Original shipping documents
indicated in Item "II.a" of Circular Letter
dated 24 January 2002.
2. NON-TRADE TRANSACTIONS
Only non-trade transactions with
specific due dates shall be eligible for
forward contracts, and shall be subject to
the same documentation requirements
under Circular No. 388 dated 26 May 2003
with the following additional guidelines for
foreign currency loans and investments.
2.1 Foreign Currency Loans owed to
non-residents or AABs
2.1.1 Deliverable Forwards
The maturing portion of the outstanding
eligible obligation, i.e., those that are
registered with the BSP registration letter,
may be covered by a deliverable forward
subject to the documentary requirements
under Circular No. 388. A copy of the
creditors billing statement may be
submitted only on or before the maturity
date of the contract.
2.1.2 NDFs
The outstanding eligible obligation, i.e.,
those that are registered with the BSP,
including interests and fees thereon as
indicated in the BSP registration letter may
be covered by a NDF, subject to the
documentary requirements under
Circular No. 388, except for the creditors
billing statement which need not be
submitted.
The amount of the forward contract
shall not exceed the outstanding amount
of the underlying obligation during the
term of the contract.
2.2 Inward Foreign Investments
The unremitted amount of sales/
maturity proceeds due for repatriation to
non-resident investors pertaining to BSP registered investments in the following
instruments issued by a Philippine resident:
a. shares of stock listed in the PSE;
b. government securities;
* If copy is indicated, it shall mean photocopy, electronic copy or facsimile of original.
APP. 58
07.12.31
c. money market instruments; and

d. peso time deposits with a minimum
tenor of ninety (90) days may be covered
by FX forward contracts subject to the
presentation of the original BSRD on or
before deal date. However, for Item
"2.2.a" above, original BSRD or BSRD
Letter-Advice, together with the brokers
sales invoice, shall be presented on or
before maturity date of the FX forward
contract, which date coincides with the
settlement date of the PSE transaction.
Sales proceeds of BSP-registered
investments in shares of stock that are not
listed in the PSE may be covered by a
deliverable FX forward contract only if
determined to be outstanding as of the deal
date for the contract and payable on a
specific future date as may be indicated in
the Contract To Sell/Deed of Absolute Sale
and subject to the same documentary
requirements under Circular No. 388.
B. FORWARD SALE OF FX TO COVER
EXPOSURES DELIVERABLE AND
NON-DELIVERABLE
1. TRADE (DELIVERABLE AND NONDELIVERABLE)
1.1 Under LC
a. Copy of LC opened; and
b. Proforma Invoice, or Sales Contract/
Purchase Order
1.2 Under DA/OA, Documents Against
Payment (DP) or Direct Remittance (DR)
Any of the following where delivery
or shipment shall be made not later than
one (1) year from deal date:
a. Sales Contract
b. Confirmed Purchase Order
c. Accepted Proforma Invoice
d. Shipment/Import Advice of the
Supplier
In addition to the above
requirements, the bank shall require the
customer to submit a Letter of Undertaking
that:
(i.) At maturity of the forward

contract, it shall comply with the
documentation requirements on the sale
of FX for trade transactions under CircularLetter dated 24 January 2002, as amended;
and
(ii.) No double hedging has been
obtained by the customer for the covered
transactions.
2. NON-TRADE (NON-DELIVERABLE)
The outstanding balance of BSPregistered foreign investments without
specific repatriation date, appearing in the
covering BSRD may only be covered by
an NDF contract, based on its market/
book value on deal date, subject to prior
BSP approval and if already with BSRD
presentation of the covering BSRD and the
proof that the investment still exists (e.g.,
stock certificate, or brokers buy invoice,
or confirmation of sale, or certificate of
investment in money market instruments,
or certificate of peso time deposits).
Hedging for permanently assigned capital
of Philippine branches of foreign banks/
firms is not allowed.
C. FORWARD PURCHASE OF FX
Such FX forward contracts shall be
subject to the banks Know Your
Customer policy and existing regulations
on anti-money laudering. In addition,
counterparties must be limited to those
that are manifestly eligible to engage in
FX forwards as part of the normal course
of their operations and which satisfy the
banks suitability and eligibility rules for
such transactions.
D. FX SWAP TRANSACTIONS
1. FX SALE (first leg)/FORWARD FX
PURCHASE (second leg)
The same minimum documentary
requirements for sale of FX under BSP
APP. 58
07.12.31
Circular No. 388 for non-trade transactions,

and Circular-Letter dated 24 January 2002,
as amended, for trade transactions, shall
be presented on or before deal date.
2. FX PURCHASE (first leg)/FORWARD
FX SALE (second leg)
The first leg of the swap will be subject
to the banks Know Your Customer
policy and existing regulations on antimoney laundering. The second leg of the
swap transaction will be subject to the
swap contract between the counterparties.
Swap contracts of this type intended to
fund peso loans to be extended by nonresidents in favor of residents shall require
prior BSP approval.
CONVERSION/TRANSFER OF FCDU LOANS TO RBU:

Amount of FCDU Loans to be transferred:

Prevailing exchange rate:
US $ 1 MM
US $ 1: PhP 53.00
FCDU Books
US $
Dr
Cr
RBU Books
PhP
Dr
US$
Cr
Dr
Cr
Transfer of a current FCDU Loan:

Due from RBU
FCDU Loan
Accrued Interest Receivable
1,013,333.33
1,000,000.00
13,333.33
Peso Loan
Due to FCDU
53,000,000.00
706,666.50
1,013,333.33
Purchase of Foreign Exchange:

Due from Foreign Banks
Cash (or any mode of payment)
1,013,333.33
53,706,666.50
Settlement:
Due to FCDU
1,013,333.33
1,013,333.33
1,013,333.33
1,013,333.33
APP. 59
05.12.31

Due from RBU
RBU Books
PhP
Dr
US$
Cr
Dr
Cr
Transfer of a past due FCDU Loan:

Due from RBU
Allowance for Probable Loss
FCDU Loan
763,333.33
250,000.00
1,000,000.00
13,333.33
53,000,000.00
706,666.50
Peso Loan
Due to FCDU
763,333.33
13,250,000.00

763,333.33

Cash (or any mode of
payment)
40,456,666.50
Settlement:

763,333.33
763,333.33
763,333.33
Due to FCDU
763,333.33
Transfer of ROPOA:
Due from RBU
ROPOA
750,000.00
250,000.00
1,000,000.00
APP. 59
05.12.31
FCDU Books
US $
Dr
Cr
FCDU Books
US $
Dr
Cr
RBU Books
PhP
Dr
US$
Cr
Dr
Cr
53,000,000.00
ROPA
Due to FCDU
750,000.00
13,250,000.00

39,750,000.00
750,000.00
Settlement:
Due from RBU
Due to FCDU
750,000.00
750,000.00
750,000.00
750,000.00
APP. 59
05.12.31
APP. 60
05.12.31
RULES AND REGULATIONS ON COMMON TRUST FUNDS1

1. The administration of CTFs shall be
subject to the provisions of Subsecs. X409.1
up to X409.6 and to the following
regulations.
As an alternative compliance with the
required prior authority and disclosure
under Subsecs. X409.2 and X409.3, a list
which shall be updated quarterly of
prospective and/or outstanding
investment outlets may be made available
by the trustee for the review of all CTF
clients. (Sec. X410).
2. Establishment of common trust
funds. A bank authorized to engage in
trust business may establish, administer
and maintain one (1) or more CTFs.
(Subsec. X410.1).
3. Minimum documentary requirements
for common trust funds. In addition
to the trust agreement or indenture
required under Subsec. X409.1, each CTF
shall be established, administered and
maintained in accordance with a written
declaration of trust referred to as the plan,
which shall be approved by the board of
directors of the trustee and a copy
within thirty (30) banking days prior to
its implementation.
The plan shall make provisions on the
following matters:
a. Title of the plan;
b. Manner in which the plan is to be
operated;
c. Investment powers of the trustee
with respect to the plan, including the
character and kind of investments which
may be purchased;
d. Allocation, apportionment, distribution

dates of income, profit and losses;
e. Terms and conditions governing the
admission or withdrawal as well as
expansion or contraction of participation in
the plan including the minimum initial
placement and account balance to be
maintained by the trustor;
f. Auditing and settlement of accounts
of the trustee with respect to the plan;
g. Detailed information on the basis,
frequency, and method of valuing and
accounting of CTF assets and each
participation in the fund;
h. Basis upon which the plan may be
terminated;
i. Liability clause of the trustee;
j. Schedule of fees and commissions
which shall be uniformly applied to all
participants in a fund and which shall not
be changed between valuation dates; and
k. Such other matters as may be
necessary or proper to define clearly the
rights of participants under the plan.
The legal capacity of the bank
administering a CTF shall be indicated in
the plan and other related agreements or
contracts as trustee of the fund and not in
any other capacity such as fund manager,
financial manager, or like terms.
The provisions of the plan shall control
all participations in the fund and the rights
and benefits of all parties in interest.
The plan may be amended by resolution
of the board of directors of the trustee:
Provided, however, That participants in the
fund shall be immediately notified of such
amendments and shall be allowed to
withdraw their participation if they are not
in conformity with the amendments made:
Provided, further, That amendments to the
The rules and regulations on common trust funds (CTFs) were previously under Sec. X410 and the Subsections enclosed in
parentheses. The UIT Funds regulations which are now in said section/subsections took effect on 01 October 2004 (effectivity
of Circular 447 dated 03 September 2004).
1
APP. 60
05.12.31
plan shall be submitted to the appropriate

the BSP within ten (10) banking days from
approval of the amendments by the board
of directors.
A copy of the plan shall be available at
the principal office of the trustee during
regular office hours for inspection by any
person having an interest in a trust whose
funds are invested in the plan or by his
authorized representative. Upon request,
a copy of the plan shall be furnished such
person. (Subsec. X410.2)
4. Management of common trust
funds. The trustee shall have the exclusive
management and control of each CTF
administered by it, and the sole right at any
time to sell, convert, reinvest, exchange,
transfer or otherwise change or dispose of
the assets comprising the fund.
The trustee shall designate clearly in its
records the trust accounts owning
participation in the CTF and the extent of
the interests of such account. The trustee
shall not negotiate nor assign the trustors
beneficial interest in the CTF without prior
written consent of the trustor or beneficiary.
No trust account holding a participation in
a CTF shall have or be deemed to have any
ownership or interest in any particular asset
or investment in the CTF but shall have only
its proportionate beneficial interest in the
fund as a whole. (Subsec. X410.3)
5. Trustee as participant in common
trust funds. A trustee administering a CTF
shall not have any interest in such fund other
than in its capacity as trustee of the CTF nor
grant any loan on the security of a
participation in such fund: That a trustee
which administers funds representing
employee benefit plans under trust or
investment management may invest funds
in the CTF: Provided, further, That in the
case of employee benefit plans under trust
belonging to employees of entities other
than that of the trustee, the trustee may

invest such funds in its own CTF only on a
temporary basis in accordance with
Subsec. X409.5. (Subsec. X410.4)
6. Exposure limit of common trust
fund to a single person or entity. No
investment for a CTF shall be made in
stocks, bonds, bank deposits or other
obligations of any one (1) person, firm or
corporation, if as a result of such
investment the total amount invested in
stocks, bonds, bank deposits or other
obligations issued or guaranteed by such
person, firm or corporation shall aggregate
to an amount in excess of fifteen percent
(15%) of the market value of the CTF:
Provided, That this limitation shall not
apply to investments in government
securities or other evidences of
indebtedness of the Republic of the
Philippines and of the BSP, and any other
evidences of indebtedness or obligations
the servicing and repayment of which are
fully guaranteed by the Republic of the
Philippines. (Subsec. X410.5)
7. Operating and accounting
methodology. By its inherent nature, a CTF
shall be operated and accounted for in
accordance with the following:
a. The trustee shall have exclusive
management and control of each CTF
administered by it and the sole right at any
time to sell, convert, reinvest, exchange,
transfer or otherwise change or dispose of
the assets comprising the fund;
b. The total assets and accountabilities
of each fund shall be accounted for as a
single account referred to as pooled-fund
accounting;
c. Contributions to each fund by
clients shall always be through
participation in the fund;
d. All such participations shall be
pooled and invested as one (1) account
(referred to as collective investments); and
APP. 60
05.12.31
e. The interest of each participant

shall be determined by a formal method of
participation valuation established in the
written plan of the CTF, and no
participation shall be admitted to, or
withdrawn from, the fund except on the
basis of such valuation. (Subsec. X410.6)
8. Tax-exempt common trust funds.
The following shall be the features/
requirements of CTFs which may qualify
for exemption from the twenty percent
(20%) final tax under Section 24(B)(1) of
R.A. No. 8424 (The Tax Reform Act of
1997):
CTFs established on or after January 3,
2000;
b. The CTF indenture or plan as well
as evidences of participation shall clearly
indicate that the participants shall be limited
to individual trustors/investors who are
Filipino citizens or resident aliens and that
participation is non-negotiable and nontransferable;
c. The date of contributions to the CTF
shall be clearly indicated in the evidence
of participation to serve as basis for the
trustee-bank to determine the period of
participation for tax exemption purposes;
d. The CTF indenture/plan as well as
the evidence of participation shall indicate
that pursuant to Section 24(B)(1) of R.A. No.
8424, interest income of the CTF derived
from investments in interest-bearing
instruments (e.g., time deposits, government
securities, loans and other debt
instruments) which are otherwise subject
to the twenty percent (20%) final tax, shall
be exempt from said final tax provided

participation in the CTF is for a period of at
least five (5) years. If participation is for a
period less than five (5) years, interest
income shall be subject to a final tax which
shall be deducted and withheld based on
the following schedule
Rate
of Tax
Participation Period
Four (4) years to less than five
(5) years
Three (3) years to less than four
(4) years
5%
12%
20%
Necessarily, the date of contribution

shall be clearly indicated in the evidence of
participation which shall serve as basis for
determining the participation period of each
participant; and
e. Tax-exempt CTFs established under
this Subsection shall be subject to the
provisions of Subsecs. X409.1(c), X409.2 up
to X409.7, and Items 2 to 7 of this
Appendix.
Regarding the required prior authority
and disclosure under Subsecs. X409.2 and
X409.3, a list of prospective and/or
outstanding investment outlets that is made
available by the trustee for the review of all
CTF clients may serve as an alternative
compliance, which list shall be updated
quarterly. (Subsec. X410.7)
9. Custody of securities. Investments
in securities of all existing CTFs shall be
delivered to a BSP-accredited third party
custodian not later than 31 October 2004.
APP. 61
06.12.31
CHECKLIST OF BSP REQUIREMENTS IN THE SUBMISSION OF FINANCIAL

AUDIT REPORT (FAR), ANNUAL AUDIT REPORT (AAR) AND REPORTS
REQUIRED UNDER APPENDIX 43
The external auditor (Included in the List of BSP Selected External Auditors) shall start
the audit not later than thirty (30) calendar days after the close of the calendar/fiscal year
adopted by the bank. AFS of banks with subsidiaries shall be presented side by side on a
solo basis and on a consolidated basis (banks and subsidiaries). The FAR shall be submitted
by the bank to the appropriate department of the SES not later than 120 calendar days after the
close of the calendar year or fiscal year adopted by the bank, together with the following:
Information/Data required
A. Financial Audit Report
1. Certification by the external auditor on
the following:
a. The dates of commencement and
termination of audit.
Deadline for submission

For submission together with the FAR not
later than 120 calendar days after the close
by the bank.
b. The date when the FAR and certification

under oath stating that no material
weakness or breach in the internal control
and risk management systems was noted
in the course of the audit of the bank were
submitted to the bank's board of directors
or country head, in the case of foreign bank
branches; and
c. That the external auditor, partners,
associates, auditor-in-charge of the
engagement and the members of their
immediate family do not have any direct
or indirect financial interest with the
bank, its subsidiaries and affiliates and
that their independence is not considered
impaired under the circumstances
specified in the Code of Professional
Ethics for CPA.
2. Reconciliation statement for the
differences in amounts between the
audited and the submitted Balance Sheet
and Income Statement for bank proper

by the bank.
APP. 61
06.12.31
(regular and FCDU) and trust

department, including copies of
adjusting entries on the reconciling
items.
Note: Please see pro-forma comparative
analysis (Annex A).
3. LOC indicating the external auditor's
findings and comments on the material
weakness noted in the internal control
and risk management systems and
other aspects of operations.
Within thirty (30) calendar days after the

submission of the FAR.
In case no material weakness is noted

to warrant the issuance of an LOC, a
certification under oath stating that no
material weakness or breach in the
internal control and risk management
systems was noted in the course of the
audit of the bank shall be submitted by
the external auditor.

by the bank.
4. Copies of the board resolutions showing the:

a. Action taken on the FAR and, where
applicable, on the certification under
oath including the names of the
directors present and absent, among
other things; and
Within thirty (30) banking days after the

receipts of the financial audit report and
certification under oath by the board of
directors.
b. Action taken on the findings and

recommendations in the LOC, and the
names of the directors present and
absent, among other things.

receipt of the LOC by the board of
directors.
5. In case of foreign banks with branches

in the Philippines, in lieu of the board
resolution:
a. A report by the country head on the
action taken by management (head
office, regional or country) on the FAR
and, where applicable, on the
certification under oath stating that no

receipt of the FAR and certification under
oath by the country head.
APP. 61
06.12.31
material weakness or breach in the

internal control and risk management
systems was noted in the course of the
audit of the bank.
b. A report by the country head on the
action taken by management (head
office, regional or country) on the LOC.

receipt of the LOC by the country head.
6. Certification of the external auditor on

the date when the LOC was submitted
to the board of directors or country
head.

receipt of the LOC by the board of directors
or country head.
7. All the required disclosures in the AFS

provided under Subsec. X166.4.

by the bank.
8. Reports required to be submitted by

the external auditor under Appendix
43:
a. To enable the BSP to take timely and
appropriate remedial action, the
external auditor must report to the BSP,

discovery.
(1) Any material finding involving fraud

or dishonesty (including cases that were
resolved during the period of audit); and
(2) Any potential losses the aggregate
of which amounts to at least one percent
(1%) of the capital.
b. The external auditor shall report directly
to the BSP the following:
Within fifteen (15) calendar days after the

occurence/discovery.
(1) Termination or resignation as

external auditor and stating the reason
therefore;
(2) Discovery of a material breach of
laws or BSP rules and regulations such
as, but not limited to:
APP. 61
06.12.31
a. CAR; and
b. Loans and other risk assets
review and classification.
(3) Findings on matters of corporate
governance that may require urgent
action by the BSP.
c. In case there are no matters to report
(e.g., fraud, dishonesty, breach of laws,
etc.) a notarized certification that there
is none to report.
Within fifteen (15) calendar days after the

closing of the audit engagement.
B. Annual Audit Report (AAR) For banks

and other financial institutions under the
concurrent jurisdiction of the BSP and
COA.
1. Copy of the AAR accompanied by the:
Within thirty (30) banking days after receipt

of the AAR by the board of directors.
a. Certification by the institution

concerned on the date of receipt of the
AAR by the board of directors;
b. Reconciliation statement between the
AFS in the AAR and the balance sheet
and income statement of bank proper
(Regular and FCDU) and trust
department submitted to the BSP,
including copies of adjusting entries on
the reconciling items; and
c. Other information that may be required
by the BSP.
2. Copy of the board resolution showing
the action taken on the AAR, as well as
on the comments and observations,
including the names of the directors
present and absent, among other
things.
Within thirty (30) banking days after receipt

of the AAR by the board of directors.
(As amended by Circular Nos. 554 dated 22 December 2006 and 540 dated 09 August 2006)
APP. 61
06.12.31
Annex A
Name of Bank
Comparison of Submitted Consolidated Balance Sheet and Income Statement
and Audited Financial Statements
(Parent and Subsidiaries)
As of (end of calendar or fiscal year)
(In Thousand Pesos)
Submitted Audited Variance/
Report
Report Discrepancy
Cash and Other Cash Items
Due from BSP
Due from Other Banks
Financial Assets Held for Trading (HFT)
Held-to-Maturity (HTM) Financial Assets
Available-for-Sale Financial Assets
Loans and Receivables, net
Interbank Loans Receivable
Equity Investments in Subsidiaries, Associates
& Joint Ventures
Bank Premises, Furniture, Fixtures and Equipment, net
Real and Other Properties Acquired (ROPA), net
Other Assets
Due from Head Office/Branches/Agencies Abroad
Total Assets
=====
Deposit Liabilities
Bills Payable
Bonds Payable
Unsecured Subordinated Debt (UnSD)
Accrued Interest, Taxes and Other Expenses
Other Liabilities
Due to Head Office/Branches/Agencies Abroad
Total Liabilities
=====
Paid-in Capital Stock
Additional Paid-In Capital
Retained Earnings
Assigned Capital
Total Capital
=====
Total Liabilities and Capital
=====
Total Income
Total Expenses
Net Income before Income Tax
Reasons for
Discrepancy
====
===== ======
====
=====
======
====
=====
======
====
=====
======
===== ==== ===== ======

(As amended by Circular Nos. 554 dated 22 December 2006 and 540 dated 09 August 2006)
APP. 62
08.12.31
QUARTERLY INVESTMENT DISCLOSURE STATEMENT

Name of Unit Investment Trust Fund:

For the quarter ended:
Net Asset Value, end of quarter:
Net Asset Value Per Unit (NAVPu):
Short Description:
(e.g., The Fund is a peso denominated _______________ (fund classification, e.g., money
market fund, bond fund, balanced fund and equity fund) suited for clients who
_____________. The investment objective of the Fund is to generate a steady stream of
income by investing in a diversified portfolio of high-grade marketable securities)
Administrative Details:
Trust Fee1: Pxxx/xx%
Minimum Investment:
Holding Period:
Participation/Redemption Conditions:
Special Reimbursable Expenses, if any: [Art V, Sec.3(b)]
Nature of Expense
Custodianship Fees
External Audit Fees
Others (specify)
Name of Third Party

xxx
xxx
xxx
Amount/Expense
Ratio2
P xxx/xx%
xxx/xx%
xxx/xx%
Outstanding Investments:
The Fund has investments in the following:
(may be in graph format showing weightings per investment type or class of security)
Prospective Investments:
The following names/securities are among the funds approved investment outlets where
the Trustee intends to invest in depending on its availability or other market driven
circumstances:
1
Indicate either the (a) amount of trust fees charged to the UIT Fund or (b) the ratio/percentage of such amount to average
daily net asset value of the UIT Fund, for the quarter.
2
Indicate either the (a) amount of special reimbursable expense charged to the UIT Fund or (b) ratio/percentage of such
expense to the average daily net asset value of the UIT Fund, for the quarter.
Average daily net asset value of the UIT Fund for the quarter ended _____________________: P_____________________.
APP. 62
08.12.31
The UIT Fund is not a deposit and not insured by PDIC. Due to the nature of the
investments yield and potential yields cannot be guaranteed. Any income or loss arising
from market fluctuations and price volatility of the securities held by the UIT Fund, even if
invested in government securities, is for the account of the investor. As such, the units of
participation of the investor in the UIT Fund, when redeemed, may be worth more or be
worth less than his/her initial investment/contributions. Historical performance, when
presented, is purely for reference purposes and is not a guarantee of future results. The
trustee is not liable for losses, unless upon willful default, bad faith or gross negligence.
APP. 62a
08.12.31
Annex A
(NAME OF TRUST ENTITY) - (TRUST BANKING GROUP/TRUST DEPARTMENT)

Unit Investment Trust Funds
RISK DISCLOSURE STATEMENT
Prior to making an investment in any of the (Name of Trust Entity) Unit Investment Trust Funds (UITFs),
(Name of Trust Entity) is hereby informing you of the nature of the UITFs and the risks involved in investing
therein. As investments in UITFs carry different degrees of risk, it is necessary that before you participate/invest
in these funds, you should have: 1. Fully understood the nature of the investment in UITFs and the extent of your
exposure to risks; 2. Read this Risk disclosure Statement completely; and 3. Independently determined that the
investment in the UITFs is appropriate for you.
There are risks involved in investing in the UITFs because the value of your investment is based on the Net
Asset Value per unit (NAVpu) of the Fund which uses a marked-to-market valuation and therefore may fluctuate
daily. The NAVpu is computed by dividing the Net Asset Value (NAV) of the Fund by the number of outstanding
units. The NAV is derived from the summation of the market value of the underlying securities of the Fund plus
accrued interest income less liabilities and qualified expenses.
Investment in the UITF does not provide guaranteed returns even if invested in government securities
and high-grade prime investment outlets. Your principal and earnings from investment in the Fund can be lost
in whole or in part when the NAVpu at the time of redemption is lower than the NAVpu at the time of
participation. Gains from investment is realized when the NAVpu at the time of redemption is higher than the
NAVpu at the time of participation.
Your investment in any of the (Name of Trust Entity) UITFs exposes you to the various types of risks
enumerated and defined hereunder:
Interest Rate Risk. This is the possibility for an investor to experience losses due to changes in interest rates.
The purchase and sale of a debt instrument may result in profit or loss because the value of a debt instrument
changes inversely with prevailing interest rates.
The UITF portfolio, being market-to-market, is affected by changes in interest rates thereby affecting the value
of fixed income investments such as bonds. Interest rate changes may affect the prices of fixed income securities
inversely, i.e., as interest rates rise, bond prices fall and when interest rates decline, bond prices rise. As the prices
of bonds in a Fund adjust to a rise in interest rates, the Funds unit price may decline.
Market/Price Risk. This is the possibility for an investor to experience losses due to changes in market prices
of securities (e.g., bonds and equities). It is the exposure to the uncertain market value of a portfolio due to price
fluctuations.
It is the risk of the UITF to lose value due to a decline in securities prices, which may sometimes happen
rapidly or unpredictably. The value of investments fluctuates over a given time period because of general market
conditions, economic changes or other events that impact large portions of the market such as political events,
natural calamities, etc. As a result, the NAVpu may increase to make profit or decrease to incur loss.
Liquidity Risk. This is the possibility for an investor to experience losses due to the inability to sell or convert
assets into cash immediately or in instances where conversion to cash is possible but at a loss. These may be
caused by different reasons such as trading in securities with small or few outstanding issues, absence of buyers,
limited buy/sell activity or underdeveloped capital market.
Liquidity risk occurs when certain securities in the UITF portfolio may be difficult or impossible to sell at a
particular time which may prevent the redemption of investment in UITF until its assets can be converted to cash.
Even government securities which are the most liquid of fixed income securities may be subjected to liquidity risk
particularly if a sizeable volume is involved.
Credit Risk/Default Risk. This is the possibility for an investor to experience losses due to a borrowers
failure to pay principal and/or interest in a timely manner on instruments such as bonds, loans, or other forms of
security which the borrower issued. This inability of the borrower to make good on its financial obligations may
have resulted from adverse changes in its financial condition thus, lowering credit quality of the security, and
consequently lowering the price (market/price risk) which contributes to the difficulty in selling such security. It
also includes risk on a counterparty (a party the UITF Manager trades with) defaulting on a contract to deliver its
obligation either in cash or securities.
This is the risk of losing value in the UITF portfolio in the event the borrower defaults on his obligation or in
the case of a counterparty, when it fails to deliver on the agreed trade. This decline in the value of the UITF
APP. 62a
08.12.31
happens because the default/failure would make the price of the security go down and may make the security
difficult to sell. As these happen, the UITFs NAVpu will be affected by a decline in value.
Reinvestment Risks. This is the risk associated with the possibility of having lower returns or earnings when
maturing funds or the interest earnings of funds are reinvested.
Investors in the UITF who redeem and realize their gains run the risk of reinvesting their funds in an
alternative investment outlet with lower yields. Similarly, the UITF manager is faced with the risk of not being able
to find good or better alternative investment outlets as some of the securities in the fund matures.
In case of a foreign-currency denominated UITF or a peso denominated UITF allowed to invest in securities
denominated in currencies other than its base currency, the UITF is also exposed to the following risks:
Foreign Exhange Risk. This is the possibility for an investor to experience losses due to fluctuations in
foreign exchange rates. The exchange rates depend upon a variety of global and local factors, e.g., interest rates,
economic performance, and political developments.
It is the risk of the UITF to currency fluctuations when the value of investments in securities denominated in
currencies other than the base currency of the UITF depreciates. Conversely, it is the risk of the UITF to lose value
when the base currency of the UITF appreciates. The NAVpu of a peso-denominated UITF invested in foreign
currency-denominated securities may decrease to incur loss when the peso appreciates.
Country Risk. This is the possibility for an investor to experience losses arising from investments in securities
issued by/in foreign countries due to the political, economic and social structures of such countries. There are
risks in foreign investments due to the possible internal and external conflicts, currency devaluations, foreign
ownership limitations and tax increases of the foreign country involved which are difficult to predict but must be
taken into account in making such investments.
Likewise, brokerage commissions and other fees may be higher in foreign securities. Government supervision
and regulation of foreign stock exchanges, currency markets, trading systems and brokers may be less than those
in the Philippines. The procedures and rules governing foreign transactions and custody of securities may also
involve delays in payment, delivery or recovery of investments.
Other Risks. Your participation in the UITFs may be further exposed to the risk of any actual or potential
conflicts of interest in the handling of in-house or related party transactions by (Name of Trust Entity). These
transactions may include own-bank deposits; purchase of own-institution or affiliate obligations (stock, mortgages);
purchase of assets from or sales to own institution, directors, officers, subsidiaries, affiliates or other related
interests/parties; or purchases or sales between fiduciary/managed accounts.
I/we have completely read and fully understood this risk disclosure statement and the same was clearly explained
to me/us by a (Name of Trust Entity) UIT marketing personnel before I/we affixed my/our signature/s herein. I/we
hereby voluntarily and willingly agree to comply with any and all laws, regulations, the plan rules, terms and
conditions governing my/our investment in the (Name of Trust Entity) UITFs.
Signature over Printed Name
Date
I acknowledge that I have (1) advised the client to read this Risk Disclosure Statement, (2) encouraged the client
to ask questions on matters contained in this Risk Disclosure Statement, and (3) fully explained the same to the
client.
________________________________
Signature over Printed Name/
Position of UIT Marketing Personnel
____________________
Date
APP. 63
05.12.31
IMPLEMENTATION PLANS UNDER THE NEW INTERNATIONAL CAPITAL

STANDARDS AS CONTAINED IN THE BASEL COMMITTEE ON BANKING
SUPERVISION (BCBS) DOCUMENT INTERNATIONAL CONVERGENCE OF
CAPITAL MEASUREMENT AND CAPITAL STANDARDS
A. General approach
UBs/KBs are expected to comply with
the standardized approach for credit risk,
and the basic indicator or standardized
approaches for operational risk by 2007. By
2010, these banks may move to the
foundation internal ratings based (IRB) or
advanced IRB approaches for credit risk, and
advanced measurement approaches for
operational risk.
TBs, on the other hand, are classified
into two (2). TBs are generally expected to
be subject to an enhanced Basel 1-type
approach by 2007. However, TBs affiliated
with UBs/KBs should use the same
approach used by the UBs/KBs.
RBs/Coop banks, meanwhile, are
expected to be subject to an enhanced Basel
1-type approach also by 2007.
An enhanced Basel 1-type approach is
basically the same as the current framework
(Sec. X116) but with certain elements of
Basel 2 already incorporated such as higher
risk weight for past due accounts, and
expanded disclosures.
B. Timetable
Between 2004 and 2007, certain
provisions of Basel 2 will be gradually
incorporated into the current risk-based
capital adequacy framework. These would
include:
(1) Giving lower risk weights for
highly-rated corporate exposures;
(2) Giving higher risk weights for past
due claims (net of specific provisions);
(3) Adopting the standardized approach
for investments in securitization structures
(i.e., risk weights would depend on external
ratings);
(4) Implementing a standard computation of liquidity risk and interest rate risk in
the banking book; and
(5) Issuing broad guidelines on
operational risk management.
The rest of the provisions of Basel 2
standardized approach for credit risk, and
basic indicator and standardized approaches
for operational risk will be implemented by
2007. Under the standardized approach for
credit risk, risk weights would mainly
depend on the external rating of the
counterparty. Under the basic indicator
approach for operational risk, capital charge
is fifteen percent (15%) of the 3-year average
of a banks gross income. Under the
standardized approach for operational risk,
on the other hand, banks will compute
capital charge separately for each business
line. Business line operational risk charge is
a fraction (between 12%-18%) of the 3-year
average of a business lines gross income.
Total operational risk charge is the sum of
the operational risk charges for all business
lines.
The expanded disclosure requirements
prescribed under Basel 2, as may be
appropriate, will also be implemented by
2007.
The draft implementation guidelines
containing all these provisions will be
exposed for comment by the BSP in the first
quarter of 2005. The final implementation
guidelines are expected to be issued by endDecember 2005.
By 2010, banks may already be allowed
to use the advanced approaches prescribed
under Basel 2. For credit risk, banks may
use the internal ratings based (IRB) approach,
where the credit risk capital charge would
APP. 63
05.12.31
depend on banks internal rating of the

counterparty, including estimates of
probability of default, loss given default, and
other risk parameters. For operational risk,
banks may use statistical modeling and other
advanced measurement tools in determining
the capital charge.
To facilitate a successful implementation
of Basel 2, the BSP will continue to engage
the banking community, particularly through
the BAPs Risk Management Committee, in
its preparations especially those involving

the eventual implementation of the
advanced approaches by 2010. The BSP
likewise strongly encourages banks to assess
the likely impact of this shift in risk-based
capital framework on their capital adequacy
ratio. Banks needing assistance in
performing this self-analysis may contact the
Office of the Assistant Governor, Supervision
and Examination Sector at email address
srso@bsp.gov.ph.
APP. 63a
07.12.31
QUALIFYING CAPITAL UNDER THE RISK BASED CAPITAL ADEQUACY

FRAMEWORK
(Appendix to Subsec. X116.1 and X119.4)
Qualifying Capital. The qualifying
capital shall be the sum of :
a. Tier 1 capital (1) Core Tier 1 capital
(a) Paid-up common stock;
(b) Paid-up perpetual and noncumulative preferred stock;
(c) Common stock dividends
distributable;
(d) Perpetual and non-cumulative
preferred stock dividends distributable;
(e) Surplus;
(f) Surplus reserves;
(g) Undivided profits (for domestic
banks only); and
(h) Minority interest in the equity of
subsidiary financial allied undertakings
which are less than wholly-owned:
Provided, That a bank shall not use
minority interests in the equity accounts of
consolidated subsidiaries as avenue for
introducing into its capital structure
elements that might not otherwise qualify
as Tier 1 capital or that would, in effect,
result in an excessive reliance on preferred
stock within Tier 1:
Provided, further, that the following
items shall be deducted from the total of
Tier 1 capital:
(i) Common stock treasury shares;
(ii) Perpetual and non-cumulative
preferred stock treasury shares;
(iii) Net unrealized losses on
underwritten listed equity securities
purchased (for domestic banks and
Philippine branches of foreign banks);
(iv) Unbooked valuation reserves and
other capital adjustments based on the latest
report of examination as approved by the
Monetary Board;
(v) Total outstanding unsecured credit
to DOSRI;
(vi) Unsecured loans, other credit

to subsidiaries and affiliates;
(vii) Deferred income tax; and
(viii) Goodwill; and
(2) Hybrid Tier 1 (HT1)
(a) With prior BSP approval,
perpetual preferred stock and perpetual
UnSD, subject to the following
conditions:
(i) The HT1 must be issued and fully
paid-up. Only the net proceeds received
from the issuance of HT1 shall be included
as capital;
(ii) The dividends/coupons on the
HT1 must be non-cumulative. It is
acceptable to pay dividends/coupons in
scrip or shares of stock if a cash dividend/
coupon is withheld: Provided, That this
does not result on issuing lower quality
capital: Provided, further, That where such
dividend/coupon stock settlement feature
is included, the bank should ensure that it
has an appropriate buffer of authorized
capital stock and appropriate stockholders
and board authorization, if necessary, to
fulfill their potential obligations under such
issues;
(iii) The HT1 must be available to
absorb losses of the bank without it being
obliged to cease carrying on business. The
agreement governing the issuance of the
HT1 should specifically provide for the
dividend/coupon and principal to absorb
losses where the bank would otherwise be
insolvent, or for the holders of the HT1 to
be treated as if they were holders of a
proceedings commenced for the winding
up of the bank. Issue documentation must
disclose to prospective investors the
manner by which the instrument is to be
treated in loss situation.
APP. 63a
07.12.31
Alternatively, the agreement governing

the issuance of the HT1 can provide for
automatic conversion into common shares
or perpetual and non-cumulative preferred
shares upon occurrence of certain trigger
events, as follows:
(aa) Breach of minimum capital ratio;
(bb) Commencement of proceedings
for winding up of the bank; or
(cc) Upon appointment of receiver for
the bank.
The rate of conversion must be fixed
at the time of subscription to the
instrument. The bank must also ensure that
it has appropriate buffer of authorized
and board authorization for conversion/
issue to take place anytime;
(iv) The holders of the HT1 must not
have a priority claim, in respect of principal
and dividend/coupon payments of the HT1
in the event of winding up of the bank,
which is higher than or equal with that of
holders of LT2 and UT2 capital instruments.
The holder of the HT1 must waive his right
to set-off any amount he owes the bank
him due to the HT1;
(v) The HT1 must be perpetual;
(vi) The HT1 must neither be secured
nor covered by a guarantee of the issuer
or related party or other arrangement that
legally or economically enhances the
priority of the claim of any holder of the
HT1 as against depositors, other creditors
of the bank and holders of LT2 and UT2
capital instruments;
(vii) The HT1 must not be redeemable
at the initiative of the holder. It must not
be repayable prior to maturity without the
prior approval of the BSP: Provided, That
repayment may be allowed only in
connection with call option after a
from issue date when
(aa) The HT1 was issued for the

purpose of a merger with or acquisition
by the bank and the merger or acquisition
is aborted;
(bb) There is a change in tax status of
the HT1 due to changes in the tax laws
(cc) The HT1 does not qualify as
Hybrid Tier 1 capital as determined by the
BSP:
Provided, further, That such repayment
prior to maturity shall be approved by the
BSP only if the preferred share/debt is
simultaneously replaced with issues of new
capital which is neither smaller in size nor
of lower quality than the original issue,
unless the banks capital ratio remains
more than adequate after redemption.
It must not contain any clause which
requires acceleration of payment of
principal, except in the event of
insolvency. The agreement governing the
issuance of the HT1 must not contain any
provision that mandates or creates an
incentive for the bank to repay the
outstanding principal of the instrument,
e.g., a cross-default or negative pledge or
a restrictive covenant, other than a call
option which may be exercised by the
bank;
(viii) The main features of the HT1 must
be publicly disclosed by annotating the
same on the instrument and in a manner
that is easily understood by the investor;
(ix) The proceeds of the HT1 must be
to the bank;
(x) The bank must have full discretion
over the amount and timing of dividends/
coupons under the HT1 where the bank
(aa) Has not paid or declared a
preceding financial year; or
(bb) Determines that no dividend is to
financial year.
The bank must have full control and
APP. 63a
07.12.31
(xi) Any dividend/coupon to be paid

under the HT1 must be paid only to the
extent that the bank has profits distributable
determined in accordance with existing BSP
regulations. The dividend/coupon rate, or
the formulation for calculating dividend/
of issuance of the HT1 and must not be
linked to the credit standing of the bank;
(xii) The HT1 may allow only one (1)
moderate step-up in the dividend/coupon
rate in conjunction with a call option, only
if the step-up occurs at a minimum of ten
(10) years after the issue date and if it results
in an increase over the initial rate that is not
more than
(aa) 100 basis points less the swap
(bb) Fifty percent (50%) of the initial
index basis.
The swap spread should be fixed as of
the pricing date and reflect the differential
in pricing on that date between the initial
reference security or rate and the steppedup reference security or rate (Refer to Annex
A for computation of dividend/coupon rate
step-up);
(xiii)The HT1 must be underwritten or
purchased by a third party not related to the
issuer bank nor acting in reciprocity for and
in behalf of the issuer bank;
(xiv)The HT1 must be issued in
minimum denominations of at least
P500,000.00 or its equivalent;
(xv) The HT1 must clearly state on its
face that it is not a deposit and is not insured
by the PDIC; and
(xvi) The bank must submit a written
external legal opinion that the above
mentioned requirements, including the
subordination and loss absorption features,
have been met:
Provided, That for purposes of reserve
requirement regulation, the HT1 shall not
be treated as time deposit liability, deposit

substitute liability or other forms of
borrowings: Provided, further, That the total
amount of HT1 that may be included in the
Tier 1 capital shall be limited to a maximum
of fifteen percent (15%) of total Tier 1 capital
(net of deductions therefrom): Provided,
furthermore, That the amount of HT1 capital
in excess of the maximum allowable limit
shall be eligible for inclusion in the Upper
Tier 2 capital, subject to the limit on total
Tier 2 capital. To determine the allowable
amount of HT1, the amount of total Tier 1
capital (net of deductions therefrom)
excluding the HT1 should be multiplied by
seventeen and sixty five percent (17.65%),
the number derived from the proportion of
fifteen percent (15%) to eighty five percent
(85%) (i.e., 15%/85% = 17.65%);
b. Tier 2 (supplementary) capital
which shall be the sum of
(1) Upper Tier 2 capital (a) Paid-up perpetual and cumulative
preferred stock;
(b) Paid-up limited life redeemable
preferred stock issued with the condition
that redemption thereof shall be allowed
only if the shares redeemed are replaced
with at least an equivalent amount of newly
paid-in shares so that the total paid-in capital
stock is maintained at the same level prior
to redemption;
(c) Perpetual and cumulative preferred
stock dividends distributable;
(d) Limited life redeemable preferred
stock with the replacement requirement
upon redemption dividends distributable;
(e) Appraisal increment reserve - bank
premises, as authorized by the Monetary
Board;
(f) Net unrealized gains on
underwritten listed equity securities
purchased: Provided, That the amount
thereof that may be included in upper Tier
2 capital shall be subject to a fifty five
percent (55%) discount (for domestic banks
and Philippine branches of foreign banks);
APP. 63a
07.12.31
(g) General loan loss provision:

Provided, That the amount thereof that may
be included in upper Tier 2 capital shall be
limited to a maximum of one and one-fourth
percent (1-1/4%) of gross risk-weighted
assets, and any amount in excess thereof
shall be deducted from the total riskweighted assets in computing the
denominator of the risk-based capital ratio;
(h) With prior BSP approval, unsecured
subordinated debt with a minimum original
maturity of at least ten (10) years, hereinafter
referred to as UT2, subject to the following
conditions:
(i) The UT2 must be issued and fully
from the issuance of UT2 shall be included
as capital;
(ii) The UT2 must be available to
absorb losses of the bank without it being
obliged to cease carrying on business. The
agreement governing the issuance of the
UT2 should specifically provide for the
coupon and principal to absorb losses
where the bank would otherwise be
insolvent, or for the holders of the UT2 to
be treated as if they were holder of a
proceedings commenced for the winding up
of the bank. Issue documentation must
disclose to prospective investors the manner
by which the instrument is to be treated in
loss situation.
the issuance of the UT2 can provide for
or perpetual and non-cumulative shares or
upon occurrence of certain trigger events,
as follows:
(aa) Breach of minimum capital ratio;
(bb) Commencement of proceedings for
winding up of the bank or
(cc) Upon appointment of receiver for
the bank.
The rate of conversion must be fixed at
the time of subscription to the instrument.
The bank must also ensure that it has

appropriate buffer of authorized capital
stock and appropriate stockholders and
board authorization for conversion/issue to
take place anytime;
(iii) The holders of the UT2 must not
and coupon payments of the UT2 in the
event of winding up of the bank, which is
higher than or equal with that of depositors,
other creditors of the bank, and holders of
LT2 capital instruments. The holder of the
UT2 must waive his right to set-off any
amount he owes the bank against any
subordinated amount owed to him due to
the UT2;
(iv) The UT2 must neither be secured
nor covered by a guarantee of the issuer or
UT2 as against depositors, other creditors
of the bank and holders of LT2 capital
instruments;
(v) The UT2 must not be redeemable
(aa) The UT2 was issued for the
the bank and the merger or acquisition is
aborted;
the UT2 due to changes in the tax laws and/
or regulations; or
(cc) The UT2 does not qualify as Upper
Tier 2 capital as determined by the BSP:
BSP only if the debt is simultaneously
replaced with issues of new capital which
APP. 63a
07.12.31
is neither smaller in size nor of lower

quality than the original issue, unless the
banks capital ratio remains more than
adequate after redemption,
principal, except in the event of insolvency.
The agreement governing the issuance of
the UT2 must not contain any provision that
mandates or creates an incentive for the
bank to repay the outstanding principal of
the instrument, e.g., a cross-default or
other than a call option which may be
(vi) The main features of the UT2 must
(vii) The proceeds of the UT2 must be
to the bank;
(viii) The bank must have the option to
defer any coupon payment on the UT2
where the bank
(aa) Has not paid or declared a
preceding financial year; or
(bb) Determines that no dividend is to
financial year;
It is acceptable for the deferred coupon to
bear interest but the interest rate payable must
not exceed market rates;
(ix) The coupon rate, or the formulation
for calculating coupon payments must be
fixed at the time of issuance of the UT2
and must not be linked to the credit
standing of the bank;
(x) The UT2 may allow only one (1)
moderate step-up in the coupon rate in
conjunction with a call option, only if the
step-up occurs at a minimum of ten (10)
years after the issue date and if it results in
an increase over the initial rate that is not
more than
(aa) 100 basis points less the swap

(bb) fifty percent (50%) of the initial
index basis.
reference security or rate and the steppedup reference or rate (Refer to Annex A for
computation of coupon rate step-up);
(xi) The UT2 must be underwritten or
purchased by a third party not related to
the issuer bank nor acting in reciprocity for
and in behalf of the issuer bank;
(xii) The UT2 must be issued in
(xiii) The UT2 must clearly state on its
by the PDIC; and
(xiv) The bank must submit a written
external legal opinion that the
abovementioned requirements, including
the subordination and loss absorption
features, have been met:
Provided, That the UT2 shall be subject
to a cumulative discount factor of twenty
percent (20%) per year during the last five
(5) years to maturity [i.e., twenty percent
(20%) if the remaining life is four (4) years
to less than five (5) years, forty percent
(40%) if the remaining life is three (3) years
to less than four (4) years, etc.]: Provided,
further, That where it is denominated in a
foreign currency, it shall be revalued in
accordance with PAS 21: Provided,
furthermore, That for purposes of reserve
requirement regulation, it shall not be
treated as time deposit liability, deposit
borrowings;
(i) Deposit for common stock
subscription; and
APP. 63a
07.12.31
(j) Deposit for perpetual and noncumulative preferred stock subscription:

Provided, That the following items shall
be deducted from the total of Upper Tier 2
capital:
1. Perpetual and cumulative preferred
stock treasury shares;
2. Limited life redeemable preferred
stock treasury shares with the replacement
requirement upon redemption; and
3. Sinking fund for redemption of
limited life redeemable preferred stock with
the replacement requirement upon
redemption; and
(k) Hybrid Tier 1 capital instruments
in excess of the maximum allowable limit
of fifteen percent (15%) of total Tier 1
capital (net of deductions therefrom)
referred to in Item a(2)(a) above on
Hybrid Tier 1 (HT1) capital.
(2) Lower Tier 2 capital
(a) Paid-up limited life redeemable
preferred stock without the replacement
requirement upon redemption: Provided,
That it shall be subject to a cumulative
discount factor of twenty percent (20%) per
year during the last five (5) years to maturity
[i.e., twenty percent (20%) if the remaining
life is four (4) years to less than five (5) years,
forty percent (40%) if the remaining life is
three (3) years to less than four (4) years,
etc.];
(b) Limited life redeemable preferred
stock without the replacement requirement
upon redemption dividends distributable;
(c) UnSD with a minimum original
maturity of at least five (5) years, hereinafter
referred to as LT2, subject to the
(i) The LT2 must be issued and fully
from the issuance of LT2 shall be included
as capital;
(ii) The holders of the LT2 must not
and coupon payments of the LT2 in the
event of winding up of the bank, which is
higher than or equal with that of depositors

and other creditors of the bank. The
holder of the LT2 must waive his right to
set-off any amount he owes the bank
him due to the LT2;
(iii) The LT2 must neither be secured
nor covered by a guarantee of the issuer
or related party or other arrangement that
LT2 as against depositors and other
creditors of the bank;
(iv) The LT2 must not be redeemable
(aa) The LT2 was issued for the
purpose of a merger with or acquisition
by the bank and the merger or acquisition
is aborted;
the LT2 due to changes in the tax laws and/
or regulations; or
(cc) The LT2 does not qualify as Lower
Tier 2 capital as determined by the BSP:
adequate after redemption.
insolvency. The agreement governing the
issuance of the LT2 must not contain any
provision that mandates or creates an
incentive for the bank to repay the
APP. 63a
07.12.31
outstanding principal of the instrument,

e.g., a cross-default or negative pledge or a
restrictive covenant other than a call option
which may be exercised by the bank;
(v) The main features of the LT2 must
(vi) The proceeds of the LT2 must be
immediately available without limitation to
the bank;
(vii) The coupon rate, or the
formulation for calculating coupon
payments must be fixed at the time of
issuance of the LT2 and must not be linked
to the credit standing of the bank;
(viii)The LT2 may allow only one (1)
step-up occurs at a minimum of five (5)
more than(aa) 100 basis points less the swap
(bb) fifty percent (50%) of the initial
index basis;
reference security or rate and the steppedup reference security or rate (Refer to Annex
A for computation of coupon rate step-up);
(ix) The LT2 must be underwritten or
purchased by a third party not related to
the issuer bank nor acting in reciprocity for
and in behalf of the issuer bank;
(x) The LT2 must be issued in
(xi) The LT2 must clearly state on its
by the PDIC; and
(xii) The bank must submit a written

the subordination feature have been met:
Provided, That the LT2 shall be subject
to a cumulative discount factor of twenty
furthermore, That, for purposes of reserve
borrowings;
(d) Deposit for perpetual and
cumulative preferred stock subscription; and
(e) Deposit
for
limited
life
redeemable preferred stock subscription
with the replacement requirement upon
redemption:
Provided, That the following items shall
be deducted from the total of Lower Tier 2
capital:
(i) Limited life redeemable preferred
stock treasury shares without the
replacement
requirement
upon
redemption;
(ii) Sinking fund for redemption of
redemption: Provided, That the amount to
be deducted shall be limited to the balance
of redeemable preferred stock after
applying the cumulative discount factor:
Provided, That the total amount of
Lower Tier 2 capital that may be included
in the Tier 2 capital shall be limited to a
maximum of fifty percent (50%) of total Tier
1 capital (net of deductions therefrom):
Provided, further, That the total amount of
Upper and Lower Tier 2 capital that may
be included in the qualifying capital shall
be limited to a maximum of 100% of total
Tier 1 capital (net of deductions therefrom);
APP. 63a
07.12.31
c. Less deductions from the total of

Tier 1 and Tier 2 capital, as follows:
(1) Investments in equity of
unconsolidated subsidiary banks and other
insurance companies;
(2) Investments in debt capital
instruments of unconsolidated subsidiary
banks;
(3) Investments in equity of subsidiary
insurance companies and non-financial
allied undertakings; and
(4) Reciprocal investments in equity
of other banks/enterprises:
(5) Reciprocal investments in
unsecured subordinated term debt
instruments of other banks/QBs qualifying
as Hybrid Tier 1, Upper Tier 2 and Lower
Tier 2, in excess of the lower of (i) an
aggregate ceiling of five percent (5%) of
total Tier 1 capital of the bank excluding
Hybrid Tier 1; or (ii) ten percent (10%) of
the total outstanding unsecured
subordinated term debt issuance of the
other bank/QBs.
Provided, That any asset deducted from
the qualifying capital in computing the
numerator of the risk-based capital ratio

shall not be included in the risk-weighted
assets in computing the denominator of the
ratio.
For foreign bank branches, Tier 1
capital elements shall consist of 1. Assigned capital; and
2. Net due to head office,
branches, subsidiaries and other offices
outside the Philippines as defined under
Subsec. X121.5.d (inclusive of earnings not
remitted to head office per Subsec.
X121.5.c): Provided, That the amount of
Net due to account shall be limited to an
amount prescribed under Subsec. X121.6:
Provided, further, That should there be
any Net due from account, the same
shall be deducted from the Tier 1 capital.
All outstanding issues of unsecured
subordinated term debt instruments
qualifying as UT2 and LT2 capital shall
continue to be governed by the provisions
of regulations existing at the time of their
issuance, except that premiums thereon
may now be counted as part of capital.
528 dated 03 May 2006)
APP. 63a
07.12.31
Annex A
Step-up Calculation
Case I. Change in Index Basis
(e.g., from 10-year US Treasury Notes to 10-year US Swap Rate)
Step 1. Determining the swap spread
A. Breakdown of Coupon Rate Based on Initial Index
Index basis (10-year US Treasury Notes)
Credit spread
Coupon rate
4.49%
5.00%
9.49%
Swap
spread of
B. Breakdown of Coupon Rate Based on Stepped-up Index
Index basis (10-year US swap rate at issuance)
5.05%
Adjusted credit spread to achieve initial coupon
rate of 9.49%
4.44%
9.49%
Coupon rate
0.56%
Step 2. Calculating Stepped-Up Coupon Rate

A. Assuming a ceiling of not more than 100 b.p., less the swap spread between
the initial index basis and the stepped-up index basis
Index basis (10-year US swap rate)
Initial credit spread
Total before step-up
Step-up (100 b.p)
Total after step-up but before swap spread
Less: Swap spread
Stepped-up coupon rate
5.05%
5.00%
10.05%
1.00%
11.05%
0.56%
10.49%
B. Assuming a ceiling of not more than 50% of the initial credit spread, less the
swap spread between the initial index basis and the stepped-up index basis
Index basis (10-year US swap rate)
Initial Credit spread
Total before step-up
Step-up (50% of the initial credit spread)
Total after step-up but before swap spread
Less: Swap spread
Stepped-up coupon rate
5.05%
5.00%
10.05%
2.50%
12.55%
0.56%
11.99%
APP. 63b
08.12.31
RISK-BASED CAPITAL ADEQUACY FRAMEWORK

FOR THE PHILIPPINE BANKING SYSTEM
Introduction
This Appendix outlines the BSP
implementing guidelines of the revised
International Convergence of Capital
Measurement and Capital Standards, or
popularly known as Basel II. Basel II is the
new international capital standards set by
the Basel Committee on Banking
Supervision (BCBS)1. It aims to replace
Basel I, which was issued in 1988 with an
amendment in 1996, to make the
risk-based capital framework more
risk-sensitive. Banks are enjoined to
submit their group-wide (including
subsidiary banks and QBs) Basel II
implementation plans from 2007-2010, not
later than 31 December 2006.
The guidelines contained in this
Appendix shall take effect on 1 July 2007.
(As amended by M-2006-022 dated 24 November 2006)
Part I. Risk-based capital adequacy ratio

1. The risk-based CAR of UBs and KBs
and their subsidiary banks and QBs,
expressed as a percentage of qualifying
capital to risk-weighted assets, shall not be
less than ten percent (10%).
2. Qualifying capital is computed in
accordance with the provisions of Part II.
Risk-weighted assets is the sum of (1) credit
risk-weighted assets (Parts III, IV, and V),
(2) market risk-weighted assets (Parts IV
and VI), and (3) operational risk-weighted
assets (Part VII).
3. The CAR requirement will be
applied to all UBs and KBs and their
subsidiary banks, and QBs on both solo
and consolidated bases. The application of
the requirement on a consolidated basis is
the best means to preserve the integrity of

capital in banks with subsidiaries by
eliminating double gearing. However, as
one of the principal objectives of
supervision is the protection of depositors,
it is essential to ensure that capital
recognized in capital adequacy measures
is readily available for those depositors.
Accordingly, individual banks should
likewise be adequately capitalized on a
stand-alone basis.
4. To the greatest extent possible, all
banking and other relevant financial activities
(both regulated and unregulated) conducted
by a bank and its subsidiaries will be captured
through consolidation. Thus, majority-owned
or -controlled financial allied undertakings
should be fully consolidated on a line by line
basis. Exemptions from consolidation shall
only be made in cases where such
holdings are acquired through debt
previously contracted and held on a
temporary basis, are subject to different
regulation, or where non-consolidation for
regulatory capital purposes is otherwise
required by law. All cases of exemption
from consolidation must be made with prior
clearance from the BSP.
5. Banks shall comply with the
minimum CAR at all times notwithstanding
that supervisory reporting shall only be on
quarterly basis. Any breach, even if only
temporary, shall be reported to the banks
Board of Directors and to BSP, SES within
three (3) banking days. For this purpose,
banks shall develop an appropriate system
to properly monitor their compliance.
6. The BSP reserves the right, upon
authority of the Deputy Governor,SES, to
conduct on-site inspection outside of
The Basel Committee on Banking Supervision is a committee of banking supervisory authorities that was established by the
central bank governors of the Group of Ten countries in 1975. It consists of senior representatives of bank supervisory
authorities and central banks from Belgium, Canada, France, Germany, Italy, Japan, Luxembourg, the Netherlands, Spain,
Sweden, Switzerland, the United Kingdom, and the United States. It usually meets at the Bank for International Settlements in
Basel, Switzerland where its permanent Secretariat is located.
1
APP. 63b
08.12.31
regular or special examination, for the

purpose of ascertaining the accuracy of
CAR calculations as well as the integrity of
CAR monitoring and reporting systems.
Part II. Qualifying capital
1. Qualifying capital consists of Tier 1
(core plus hybrid) capital and Tier 2
(supplementary) capital elements, net of
required deductions from capital.
A. Tier 1 Capital
2. Tier 1 capital is the sum of core
Tier 1 capital and allowable amount of hybrid
Tier 1 capital, as set in paragraph 12.
3. Core Tier 1 capital consists of:
a) Paid-up common stock;
b) Paid-up perpetual and noncumulative preferred stock;
c) Additional paid-in capital;
d) Retained earnings;
e) Undivided profits (for domestic
banks only);
f) Net gains on fair value adjustment
of hedging instruments in a cash flow hedge
of available for sale equity securities;
g) Cumulative foreign currency
translation; and
h) Minority interest in subsidiary
financial allied undertakings which are less
than wholly-owned: Provided, That a bank
shall not use minority interests in the equity
accounts of consolidated subsidiaries as
avenue for introducing into its capital
structure elements that might not otherwise
qualify as Tier 1 capital or that would, in
effect, result in an excessive reliance on
preferred stock within Tier 1:
Less:
i. Common stock treasury shares;
ii. Perpetual and non-cumulative
preferred stock treasury shares;
iii. Net unrealized losses on available
for sale equity securities purchased;
iv. Gains (Losses) resulting from
designating financial liabilities at fair value
through profit or loss that are due to own

credit worthiness;
v. Unbooked valuation reserves and
other capital adjustments based on the
latest report of examination as approved
by the Monetary Board;
vi. Total outstanding unsecured credit
to DOSRI and unsecured loans, other
granted to subsidiaries and affiliates;
vii. Deferred income tax;
viii.Goodwill, including that relating to
unconsolidated subsidiary banks, financial
allied undertakings, excluding subsidiary
securities dealers/brokers and insurance
companies, (on solo basis) and
unconsolidated subsidiary securities
dealers/brokers, insurance companies and
non-financial allied undertakings (on solo
and consolidated bases); and
ix. Gain on sale resulting from a
securitization transaction.
4. Hybrid Tier 1 capital in the form of
perpetual preferred stock and perpetual
UnSD may be issued subject to prior BSP
approval and to the conditions in
paragraph 12.
5. In the case of foreign banks, Tier 1
capital is equivalent to:
a) Assigned capital including earnings
not remitted to the head office which the
bank elects to consider as part of assigned
capital (in which case it can no longer be
remitted to the head office); and
b) Net due to head office, branches,
subsidiaries and other offices outside the
Philippines as defined under Subsec.
X121.5.d (inclusive of earnings not remitted
to head office per Subsec. X121.5.c, unless
considered as part of the assigned capital by
the bank), subject to the limit prescribed
under Subsec. X121.6,
Less:
i. Any balance in the Net due from
account.
APP. 63b
08.12.31
B. Tier 2 Capital
6. Tier 2 capital is the sum of upper
Tier 2 capital and lower Tier 2 capital.
7. The total amount of lower Tier 2
(LT2) capital before deductions
enumerated in paragraph 10 that may be
included in total Tier 2 capital shall be
limited to a maximum of fifty percent
(50%) of total Tier 1 capital (net of
deductions enumerated in paragraph 3).
The total amount of upper and lower Tier 2
capital both before deductions enumerated
in paragraph 10 that may be included in
total qualifying capital shall be limited to a
maximum of 100% of total Tier 1 capital
(net of deductions enumerated in
paragraph 3).
8. Upper Tier 2 capital consists of:
a) Paid-up perpetual and cumulative
preferred stock;
b) Paid-up limited life redeemable
preferred stock issued with the condition
that redemption thereof shall be allowed
only if the shares redeemed are replaced
with at least an equivalent amount of
newly paid-in shares so that the total paidin capital stock is maintained at the same
level prior to redemption;
c) Appraisal increment reserve
bank premises, as authorized by the
Monetary Board;
d) Net unrealized gains on available
for sale equity securities purchased subject
to a fifty five percent (55%) discount;
e) General loan loss provision,
limited to a maximum of one percent (1%)
of credit risk-weighted assets, and any
amount in excess thereof shall be deducted
from the credit risk-weighted assets in
computing the denominator of the riskbased capital ratio;
f) With prior BSP approval, UnSD
with a minimum original maturity of at
least ten (10) years issued subject to
the conditions in paragraph 13, in an
amount equivalent to its carrying
amount discounted by the following
rates:
Remaining maturity
5 years & above
4 years to <5 years
3 years to <4 years
2 years to <3 years
1 year to <2 years
< 1 year
Discount factor
0%
20%
40%
60%
80%
100%
g) Deposit for common stock

subscription;
h) Deposit for perpetual and noncumulative preferred stock subscription; and
i) Hybrid Tier 1 capital as defined in
paragraph 4 in excess of the maximum
allowable limit of fifteen percent (15%) of
total Tier 1 capital (net of deductions
enumerated in paragraph 3):
Less:
i. Perpetual and cumulative preferred
stock treasury shares;
ii. Limited life redeemable preferred
stock treasury shares with the replacement
requirement upon redemption;
iii. Sinking fund for redemption of
with the replacement requirement upon
redemption; and
iv. Net losses in fair value adjustment
of hedging instruments in a cash flow
hedge of available for sale equity
securities.
9. LT2 capital consists of:
a) Paid-up limited life redeemable
preferred stock without the replacement
requirement upon redemption in an
amount equivalent to its carrying amount
discounted by the following rates:
Remaining maturity
5 years & above
4 years to <5 years
3 years to <4 years
2 years to <3 years
1 year to <2 years
< 1 year
Discount factor
0%
20%
40%
60%
80%
100%
b) With prior BSP approval, UnSD

with a minimum original maturity of at
APP. 63b
08.12.31
least five (5) years, issued subject to the

conditions in paragraph 14, in an amount
equivalent to its carrying amount
discounted by the following rates:
Remaining maturity
5 years & above
4 years to <5 years
3 years to <4 years
2 years to <3 years
1 year to <2 years
< 1 year
Discount factor
0%
20%
40%
60%
80%
100%
c) Deposit for perpetual and

cumulative preferred stock subscription;
and
d) Deposit for limited life redeemable
preferred stock subscription with the
replacement
requirement
upon
redemption.
Less:
i. Limited life redeemable preferred
stock treasury shares without the replacement
requirement upon redemption; and
ii. Sinking fund for redemption of
redemption up to the extent of the balance
of redeemable preferred stock after
applying the cumulative discount factor.
C. Deductions from the total of Tier 1 and
Tier 2 capital
10. The following items should be
deducted fifty percent (50%) from
Tier 1 and fifty percent (50%) from Tier
2 capital:
a) Investments in equity of
unconsolidated subsidiary banks and QBs,
and other financial allied undertakings
(excluding subsidiary securities dealers/
brokers and insurance companies), after
deducting related goodwill, if any
(for solo basis);
b) Investments in other regulatory
capital instruments of unconsolidated
subsidiary banks and QBs (for solo basis);
c) Investments in equity of
unconsolidated subsidiary securities
dealers/brokers, insurance companies,
and non-financial allied undertakings, after
deducting related goodwill, if any (for both
solo and consolidated bases);
d) Capital shortfalls of unconsolidated
subsidiary securities dealers/brokers and
insurance companies (for both solo and
consolidated bases);
e) Significant minority investments
(20%-50% of voting stock) in banks and QBs,
and other financial allied undertakings (for
both solo and consolidated bases);
f) Reciprocal investments in equity
of other banks/enterprises;
g) Reciprocal investments in other
regulatory capital instruments of other
banks and QBs;
h) Materiality thresholds in credit
derivative contracts purchased;
i) Securitization tranches which are
rated below investment grade or are
unrated; and
j) Credit enhancing interest only
strips in relation to a securitization structure,
net of the amount of gain-on-sale that
must be deducted from core Tier 1 capital
referred to in paragraph 3.
11. Any asset deducted from qualifying
capital in computing the numerator of the
risk-based capital ratio shall not be included
in the risk-weighted assets in computing
the denominator of the ratio. Available for
sale debt securities shall be risk-weighted
net of specific provisions as provided in
paragraph 1 of Part III.A, but without
considering accumulated market gains/
losses.
D. Eligible instruments under hybrid Tier 1
capital
12. Perpetual preferred stock and
perpetual UnSD issuances of banks should
comply with the following minimum
conditions in order to be eligible as hybrid
Tier 1 (HT1) capital:
APP. 63b
08.12.31
a) It must be issued and fully paid-up.

issuance shall be included as capital;
b) The dividends/coupons must be
non-cumulative. It is acceptable to pay
dividends/coupons in scrip or shares of
stock if a cash dividend/coupon is withheld:
Provided, That this does not result on
issuing lower quality capital: Provided,
further, That where such dividend/coupon
stock settlement feature is included, the
bank should ensure that it has an
appropriate buffer of authorized capital
stock and appropriate stockholders and
board authorization, if necessary, to fulfill
their potential obligations under such
issues;
c) It must be available to absorb
losses of the bank without it being obliged
to cease carrying on business. The
agreement governing its issuance should
specifically provide for the dividend/
coupon and principal to absorb losses
where the bank would otherwise be
insolvent, or for its holders to be treated as
if they were holders of a specified class of
share capital in any proceedings commenced
for the winding up of the bank. Issue
documentation must disclose to prospective
investors the manner by which the
instrument is to be treated in loss situation.
Alternatively,
the
agreement
governing its issuance can provide for
or perpetual and non-cumulative preferred
shares upon occurrence of certain trigger
events, as follows:
i. Breach of minimum capital ratio;
ii. Commencement of proceedings
iii. Upon appointment of receiver for
the bank.

d) Its holders must not have a priority
claim, in respect of principal and dividend/
coupon payments in the event of winding
up of the bank, which is higher than or
equal with that of depositors, other creditors
of the bank and holders of LT2 and UT2
capital instruments. Its holder must waive
his right to set-off any amount he owes the
bank against any subordinated amount
owed to him due to the HT1 capital
instrument;
e) It must neither be secured nor
priority of the claim of any holder as against
holders of LT2 and UT2 capital instruments;
f) It must not be redeemable at the
initiative of the holder. It must not be
repayable without the prior approval of the
BSP: Provided, That repayment may be
allowed only in connection with call option
after a minimum of five (5) years from issue
date: Provided, however, That a call option
may be exercised within the first five (5)
years from issue date when
i. It was issued for the purpose of a
merger with or acquisition by the bank and
the merger or acquisition is aborted;
ii. There is a change in tax status of
the HT1 capital instrument due to changes
in the tax laws and/or regulations; or
iii. It does not qualify as HT1 capital
as determined by the BSP:
shall be approved by the BSP only if the
preferred share/debt is simultaneously
APP. 63b
08.12.31

insolvency. The agreement governing its
issuance must not contain any provision
that mandates or creates an incentive for
the bank to repay the outstanding principal
of the instrument, e.g., a cross-default or
g) Its main features must be publicly
disclosed by annotating the same on the
instrument and in a manner that is easily
understood by the investor;
h) The proceeds of the issuance must
be immediately available without
limitation to the bank;
i) The bank must have full discretion
over the amount and timing of dividends/
coupons where the bank
i. Has not paid or declared a dividend
on its common shares in the preceding
financial year; or
ii. Determines that no dividend is to
financial year.
The bank must have full control and
j) Any dividend/coupon to be paid
must be paid only to the extent that the
bank has profits distributable determined
in accordance with existing BSP
regulations. The dividend/coupon rate, or
the formulation for calculating dividend/
of issuance and must not be linked to the
credit standing of the bank;
k) It may allow only one (1) moderate
step-up in the dividend/coupon rate in
more than:
i. 100 basis points less the swap
ii. fifty percent (50%) of the initial

index basis.
reference security or rate and the steppedup reference security or rate.
l) It must be underwritten by a third
party not related to the issuer bank nor
acting in reciprocity for and in behalf of
the issuer bank;
m) It must be issued in minimum
denominations of at least P500,000.00 or
its equivalent;
n) It must clearly state on its face that
it is not a deposit and is not insured by the
PDIC; and
o) The bank must submit a written
Provided, That for purposes of reserve
borrowings: Provided, further, That the total
amount of HT1 capital that may be included
in the Tier 1 capital shall be limited to a
maximum of fifteen percent (15%) of total
Tier 1 capital (net of deductions
enumerated in paragraph 3): Provided,
furthermore, That the amount of HT1
capital in excess of the maximum limit
shall be eligible for inclusion in the UT2
capital, subject to the limit in total Tier 2
capital. To determine the allowable amount
of HT1 capital, the amount of total core Tier 1
capital (net of deductions enumerated in
paragraph 3) should be multiplied by
seventeen and sixty five percent (17.65%),
the number derived from the proportion
of fifteen percent (15%) to eighty five
percent (85%), i.e., 15%/85% = 17.65%.
E. Eligible unsecured subordinated debt
13. UnSD issuances by banks should
APP. 63b
08.12.31
conditions in order to be eligible as UT2

capital:
b) It must be available to absorb
losses of the bank without it being obliged
to cease carrying on business. The
agreement governing its issuance should
specifically provide for the coupon and
principal to absorb losses where the bank
would otherwise be insolvent, or for its
holders to be treated as if they were
holders of a specified class of share capital
in any proceedings commenced for the
winding up of the bank. Issue
documentation must disclose to
prospective investors the manner by which
the instrument is to be treated in loss
situation.
its issuance can provide for automatic
conversion into common shares or
perpetual and non-cumulative shares or
upon occurrence of certain trigger events,
as follows:
i. Breach of minimum capital ratio;
ii. Commencement of proceedings
iii. Upon appointment of receiver for
the bank.
c) Its holders must not have priority
payments in the event of winding up of
the bank, which is higher than or equal
with that of depositors, other creditors of
the bank, and holders of LT2 capital
instruments. Its holder must waive his right
to set off any amount he owes the bank

him due to the UT2 capital instrument;
d) It must neither be secured nor
holders of LT2 capital instruments;
e) It must not be redeemable at the
repayable prior to maturity without the
connection with a call option after a
from issue date when:
merger with or acquisition by the bank and
the merger or acquisition is aborted;
the UT2 capital instrument due to changes
iii. It does not qualify as UT2 capital
requires acceleration of payment of principal,
except in the event of insolvency. The
agreement governing its issuance must not
contain any provision that mandates or
creates an incentive for the bank to repay
the outstanding principal of the instrument,
e.g., a cross-default or negative pledge or
a restrictive covenant, other than a call option
which may be exercised by the bank;
f) Its main features must be publicly
APP. 63b
08.12.31

g) The proceeds of the issuance must
h) The bank must have the option to
defer any coupon payment where the
bank:
i. has not paid or declared a dividend
on its common shares in the preceding
financial year; or
ii. determines that no dividend is to
financial year;
It is acceptable for the deferred coupon
to bear interest but the interest rate
payable must not exceed market rates;
i) The coupon rate, or the formulation
for calculating coupon payments must be
fixed at the time of issuance and must not
be linked to the credit standing of the
bank;
j) It may allow only one (1)
years after the issue date and if it results
in an increase over the initial rate that is
not more than:
k) It must be underwritten by a third
the issuer bank;
l) It must be issued in minimum
its equivalent;
m) It must clearly state on its face that

PDIC; and
n) The bank must submit a written
Provided, That it shall be subject to a
cumulative discount factor of twenty
furthermore, That for purposes of reserve
borrowings.
14. UnSD issuances by banks should
conditions in order to be eligible as LT2
capital:
b) Its holders must not have priority
payments in the event of winding up of
the bank, which is higher than or equal
of the bank. Its holder must waive his right
to set-off any amount he owes the bank
him due to the LT2 capital instrument;
c) It must neither be secured nor
depositors and other creditors of the bank;
d) It must not be redeemable at the
APP. 63b
08.12.31
repayable prior to maturity without the

prior approval of the BSP:
Provided, That repayment may be
allowed only in connection with a call
option after a minimum of five (5) years
from issue date: Provided, however, That
a call option may be exercised within the
first five (5) years from issue date when:
merger with or acquisition by the bank
and the merger or acquisition is aborted;
the LT2 capital instrument due to changes
iii. It does not qualify as LT2 capital
Provided, further, That such
repayment prior to maturity shall be
approved by the BSP only if the debt is
simultaneously replaced with issues of
new capital which is neither smaller in
size nor of lower quality than the original
issue, unless the banks capital ratio
redemption.
insolvency. The agreement governing its
issuance must not contain any provision
that mandates or creates an incentive for
the bank to repay the outstanding principal
of the instrument, e.g., a cross-default or
e) Its main features must be publicly
f) The proceeds of the issuance must
g) The coupon rate, or the
formulation for calculating coupon
payments must be fixed at the time of
issuance and must not be linked to the
credit standing of the bank;
h) It may allow only one (1) moderate

step-up in the coupon rate in conjunction
with a call option, only if the step-up occurs
at a minimum of five (5) years after the issue
date and if it results in an increase over the
initial rate that is not more than:
The swap spread should be fixed as
of the pricing date and reflect the
differential in pricing on that date between
the initial reference security or rate and
the stepped-up reference security or rate;
i) It must be underwritten by a third
the issuer bank;
j) It must be issued in minimum
its equivalent;
k) It must clearly state on its face that
PDIC; and
l) The bank must submit a written
the subordination features, have been met:
Provided, That it shall be subject to a
cumulative discount factor of twenty
(40%) if the remaining life is three (3)
years to less than four (4) years, etc.]:
Provided, further, That where it is
denominated in a foreign currency, it shall
be revalued in accordance with PAS 21:
Provided, furthermore, That for purposes
of reserve requirement regulation, it shall
not be treated as time deposit liability,
deposit substitute liability or other forms
of borrowings.
APP. 63b
08.12.31
Part III. Credit risk-weighted assets

A. Risk-weighting
1. Banking book exposures shall be
risk-weighted based on third party credit
assessment of the individual exposure
given by eligible external credit
assessment institutions listed in Part III.C.
The table below sets out the mapping of

external credit assessments with the
corresponding risk weights for banking
book exposures. Exposures related to
credit derivatives and securitizations are
dealt with in Parts IV and V, respectively.
Exposures should be risk-weighted net of
specific provisions.
STANDARDIZED CREDIT RISK WEIGHTS

Credit Assessment1
Sovereigns
MDBs
Banks
Interbank call loans
Local government units
Government corporations
Corporates
Housing loans
MSME qualified portfolio
Defaulted exposures
Housing loans
Others
ROPA
All other assets
AAA
0%
0%
20%
AA+ to
A+
AAto A0%
20%
20%
50%
20%
50%
20%
20%
20%
20%
20%
20%
50%
50%
50%
Sovereign Exposures
2. These include all exposures to
central governments and central banks.
All Philippine peso (Php) denominated
exposures to the Philippine National
Government (NG) and the BSP shall be
risk-weighted at zero percent (0%).
Foreign currency denominated exposures
to the NG and the BSP, however, shall
be risk-weighted according to the table
above: Provided, That only one-third
(1/3) of the applicable risk weight shall
be applied from 01 July 2007, two-thirds
(2/3) from 01 January 2008, and the full
risk weight from 01 January 2009 3 .
Exposures to the Bank for International
Settlements (BIS), the International
Monetary Fund (IMF), and the European
Central Bank (ECB) and the European
BBB+ to BB+ to
BBBBB50%
100%
50%
100%
50%
100%
20%
50%
100%
100% 100%
100% 100%
50%
75%
B+
to B100%
100%
100%
Below
B150%
150%
150%
Unrated
100%
100%
100%2
100%
150%
150%
150%
150%
150%
100%2
100% 2
100% 2
100%
150%
150%
100%
Community (EC) shall also receive zero

percent (0%) risk weight.
MDB Exposures
multilateral development banks. Exposures
to the World Bank Group comprised of the
IBRD and the IFC, the ADB, the AfDB, the
EBRD, the IADB, the EIB, the European
Investment Fund (EIF), the NIB, the CDB,
the Islamic Development Bank (IDB), and
the CEDB currently receive zero percent
(0%) risk weight. However, it is the
responsibility of the bank to monitor the
external credit assessments of multilateral
development banks to which they have an
exposure to reflect in the risk weights any
change therein.
1 The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external
rating agencies is in Part III.C
2 Or risk weight applicable to sovereign of incorporation, whichever is higher
3 The capital treatment of banks holdings of ROP Global Bonds paired with Warrants under the BSP's revised
risk-based capital adequacy framework is contained in Appendix 63b-1.
APP. 63b
08.12.31
Bank Exposures
Philippine-incorporated banks/QBs, as
well as foreign-incorporated banks.
Interbank Call Loans
5. Interbank call loans refer to
interbank loans that pass through the
Interbank Call Loan Funds Transfer System
of the BSP, the BAP, and the PCHC.
Exposures to Local Government Units
6. These include all exposures to noncentral government public sector entities.
Bonds issued by Philippine local
government units (LGU Bonds), which are
covered by Deed of Assignment of Internal
Revenue Allotment of the LGU and
guaranteed by the LGU Guarantee
Corporation shall be risk-weighted at the
lower of fifty percent (50%) or the appropriate
risk weight indicated in the table above.
Exposures to Government Corporations
commercial undertakings owned by
central or local governments. Exposures
to Philippine GOCCs that are not explicitly
guaranteed by the Philippine NG are also
included in this category.
Corporate Exposures
business entities, which are not considered
as micro, small, or medium enterprises
(MSME), whether in the form of a
corporation, partnership, or soleproprietorship. These also include all
exposures to FIs, including securities dealers/
brokers and insurance companies, not falling
under the definition of Bank in paragraph 4.
Housing Loans
9. These include all current loans to
individuals for housing purpose, fully secured
by first mortgage on residential property that
1\
is or will be occupied by the borrower .
1\
Micro, Small, and Medium Enterprises

(MSME)
10. An exposure must meet the
following criteria to be considered as an
MSME exposure:
a) The exposure must be to an MSME
as defined under existing BSP regulations;
and
b) The exposure must be in the form
of direct loans, or unavailed portion of
committed credit lines and other business
facilities such as outstanding guarantees
issued and unused letters of credit:
Provided, That the credit equivalent
amounts thereof shall be determined in
accordance with the methodology for
off-balance sheet items.
Qualified portfolio
11. For a banks portfolio of MSME
exposures to be considered as qualified, it
must be a highly diversified portfolio, i.e.,
it has at least 500 borrowers that are
distributed over a number of industries. In
addition, all MSME exposures in the
qualified portfolio must be current
exposures. All non-current MSME
exposures are excluded from count and are
to be treated as ordinary non-performing
loans. Current MSME exposures not
qualifying under highly diversified MSME
portfolio will be risk-weighted based on
external rating and shall be risk-weighted
in the same manner as corporate
exposures.
Defaulted Exposures
12. A default is considered to have
occurred in the following cases:
a) If a credit obligation is considered
non-performing under existing rules and
regulations. For non-performing debt
securities, they shall be defined as follows:
i. For zero-coupon debt securities,
and debt securities with quarterly,
semi-annual, or annual coupon payments,
they shall be considered non-performing
when principal and/or coupon payment, as
Includes housing microfinance loans under Sec. X361.5
APP. 63b
08.12.31
may be applicable, is unpaid for thirty (30)

days or more after due date; and
ii. For debt securities with monthly
coupon payments, they shall be
considered non-performing when three (3)
or more coupon payments are in arrears:
balance of the debt security, the total
outstanding balance of the debt security
shall be considered as non-performing.
b) If a borrower/obligor has sought or
has been placed in bankruptcy, has been
found insolvent, or has ceased operations
in the case of businesses;
c) If the bank sells a credit obligation
at a material credit-related loss, i.e.,
excluding gains and losses due to interest
rate movements. Banks board-approved
internal policies must specifically define
when a material credit-related loss
occurs; and
d) If a credit obligation of a borrower/
obligor is considered to be in default, all
credit obligations of the borrower/obligor
with the same bank shall also be
considered to be in default.
Housing loans
13. These include all loans to
individuals for housing purpose, fully
property that is or will be occupied by the
borrower, which are considered to be in
default in accordance with paragraph 12.
Others
14. These include the total amounts or
portions of all other defaulted exposures,
which are not secured by eligible collateral
or guarantee as defined in Part III.B.
ROPA
15. All real and other properties
acquired and classified as such under
existing regulations.
Other Assets
16. The standard risk weight for all
other assets, including bank premises,
furniture, fixtures and equipment, will be
100%, except in the following cases:
a) Cash on hand and gold, which shall
be risk-weighted at zero percent (0%); and
b) Checks and other cash items,
which shall be risk-weighted at twenty
percent (20%).
Accruals on a claim shall be classified
and risk-weighted in the same way as the
claim. Bills purchased shall be classified
and risk-weighted as claims on the drawee
bank. The treatments of credit derivatives
and securitization exposures are presented
separately in Parts IV and V, respectively.
Investments in equity or other regulatory
capital instruments issued by banks or
other financial/non-financial allied/nonallied undertakings will be risk-weighted
at 100%, unless deductible from the capital
base as required in Part II.
Off-balance sheet items
17. For off-balance sheet items, the
risk-weighted amount shall be calculated
using a two-step process. First, the credit
equivalent amount of an off-balance sheet
item shall be determined by multiplying its
notional principal amount by the appropriate
credit conversion factor, as follows:
a) 100% credit conversion factor - this
shall apply to direct credit substitutes, e.g.,
general guarantees of indebtedness
(including standby letters of credit serving
as financial guarantees for loans and
securities) and acceptances (including
endorsements with the character of
acceptances), and shall include:
i. Guarantees issued other than
shipside bonds/airway bills;
ii. Financial standby letters of credit
b) Fifty percent (50%) credit
conversion factor this shall apply to
certain transaction-related contingent
items, e.g., performance bonds, bid bonds,
APP. 63b
08.12.31
warranties and standby letters of credit

related to particular transactions, and shall
include:
i. Performance standby letters of
credit (net of margin deposit), established
as a guarantee that a business transaction
will be performed;
This shall also apply to
i. Note issuance facilities and
revolving underwriting facilities; and
ii. Other commitments, e.g., formal
standby facilities and credit lines with an
original maturity of more than one (1) year,
and this shall also include Underwritten
Accounts Unsold.
c) Twenty percent (20%) credit
conversion factor this shall apply to shortterm, self-liquidating trade-related
contingencies arising from movement of
goods, e.g., documentary credits
collateralized by the underlying
shipments, and shall include:
i. Trade-related guarantees:
- Shipside bonds/airway bills
- Letters of credit confirmed
ii. Sight letters of credit outstanding
(net of margin deposit);
iii. Usance letters of credit outstanding
(net of margin deposit);
iv. Deferred letters of credit (net of
margin deposit); and
v. Revolving letters of credit (net of
margin deposit) arising from movement of
goods and/or services;
This shall also apply to commitments
with an original maturity of up to one (1)
year, and shall include Committed Credit
Line for Commercial Paper Issued.
d) Zero percent (0%) credit conversion
factor this shall apply to commitments
which can be unconditionally cancelled at
any time by the bank without prior notice,
and shall include Credit Card Lines.
This shall also apply to those not
involving credit risk, and shall include:
i. Late deposits/payments received;
ii. Inward bills for collection;
iii. Outward bills for collection;
iv. Travelers checks unsold;

v. Trust department accounts;
vi. Items held for safekeeping/
custodianship;
vii. Items held as collaterals;
viii.Deficiency claims receivable; and
ix. Others.
18. For derivative contracts, the credit
equivalent amount shall be the sum of the
current credit exposure (or replacement
cost) and an estimate of the potential future
credit exposure (or add-on). However, the
following shall not be included in the
computation:
a) Instruments which are traded in an
exchange where they are subject to daily
receipt and payment of cash variation
margin; and
b) Exchange rate contract with
original maturity of fourteen (14) calendar
days or less.
19. The current credit exposure shall be
the positive mark-to-market value of the
contract (or zero if the mark-to-market value
is zero or negative). The potential future
credit exposure shall be the product of the
notional principal amount of the contract
multiplied by the appropriate potential future
credit conversion factor, as indicated below:
Interest Exchange
Rate
Rate
Equity
Contract Contract Contract
One (1) year or less 0.0%
1.0%
6.0%
Over one (1) year to
five (5) years
0.5%
5.0%
8.0%
Over five (5) years
1.5%
7.5%
10.0%
Residual Maturity
Provided, That:
a) For contracts with multiple
exchanges of principal, the factors are to
be multiplied by the number of remaining
payments in the contract;
b) For contracts that are structured to
settle outstanding exposure following
specified payment dates and where the
terms are reset such that the market value
of the contract is zero on these specified
dates, the residual maturity would be set
APP. 63b
08.12.31
equal to the time until the next reset date,

and in the case of interest rate contracts
with remaining maturities of more than one
(1) year that meet these criteria, the potential
future credit conversion factor is subject to
a floor of one-half percent (1/2%); and
c) No potential future credit exposure
shall be calculated for single currency
floating/floating interest rate swaps, i.e., the
credit exposure on these contracts would
be evaluated solely on the basis of their
mark-to-market value.
20. The credit equivalent amount shall
be treated like any on-balance sheet asset,
and shall be assigned the appropriate risk
weight, i.e., according to the third party
credit assessment of the counterparty
exposure.
B. Credit risk mitigation (CRM)
21. Banks use a number of techniques
to mitigate the credit risks to which they
are exposed. For example, exposures may
be collateralized by first priority claims, in
whole or in part with cash or securities, or
a loan exposure may be guaranteed by a
third party. Physical collateral, such as real
estate, buildings, machineries, and
inventories are not recognized at this time
for credit risk mitigation purposes in line
with Basel II recommendations.
22. In order for banks to obtain capital
relief for any use of CRM techniques, all
documentation used in collateralized
transactions and for documenting
guarantees must be binding on all parties
and legally enforceable in all relevant
jurisdictions. Banks must have conducted
sufficient legal review to verify this and have
a well-founded legal basis to reach this
conclusion, and undertake such further
review as necessary to ensure continuing
enforceability.
23. The effects of CRM will not be
double counted. Therefore, no additional
supervisory recognition of CRM for
regulatory capital purposes will be granted
on claims for which an issue-specific rating

is used that already reflects that CRM.
Principal-only ratings will not be allowed
within the framework of CRM.
24. While the use of CRM techniques
reduces or transfers credit risk, it
simultaneously may increase other risks
(residual risks). Residual risks include
legal, operational, liquidity and market
risks. Therefore, it is imperative that banks
employ robust procedures and processes
to control these risks, including strategy;
consideration of the underlying credit;
valuation; policies and procedures;
systems; control of roll-off risks; and
management of concentration risk arising
from the banks use of CRM techniques
and its interaction with the banks overall
credit risk profile.
25. The disclosure requirements under
Part VIII of this document must also be
observed for banks to obtain capital relief
(i.e., adjustments in the risk weights of
collateralized or guaranteed exposures) in
respect of any CRM techniques.
Collateralized transactions
26. A collateralized transaction is one
in which:
a) banks have a credit exposure or
potential credit exposure; and
b) that credit exposure or potential
credit exposure is hedged in whole or in
part by collateral posted by a counterparty1
or by a third party in behalf of the
counterparty.
27. In addition to the general
requirement for legal certainty set out in
paragraph 22, the legal mechanism by
which collateral is pledged or transferred
must ensure that the bank has the right to
liquidate or take legal possession of it, in a
timely manner, in the event of default,
insolvency or bankruptcy (or one or more
otherwise-defined credit events set out in
the transaction documentation) of the
counterparty (and, where applicable, of the
1
Counterparty refers to a party to whom a bank has an on- or off-balance sheet credit exposure or a potential credit
exposure.
APP. 63b
08.12.31
custodian holding the collateral).

Furthermore, banks must take all steps
necessary to fulfill those requirements
under the law applicable to the banks
interest in the collateral for obtaining and
maintaining an enforceable security
interest, e.g., by registering it with a
registrar, or for exercising a right to net
or set off in relation to title transfer
collateral.
28. In order for collateral to provide
protection, the credit quality of the
counterparty and the value of the collateral
must not have a material positive
correlation. For example, securities issued
by the counterparty or by any related
group entity would provide little
protection and so would be ineligible.
29. Banks must have clear and robust
procedures for the timely liquidation of
collateral to ensure that any legal
conditions required for declaring the
default of the counterparty and liquidating
the collateral are observed, and that
collateral can be liquidated promptly.
30. Where the collateral is required to
be held by a custodian, the BSP will only
recognize the collateral for regulatory
capital purposes if it is held by BSPauthorized third party custodians.
31. A capital requirement will be
applied to a bank on either side of the
collateralized transaction: for example,
both repos and reverse repos will be
subject to capital requirements. Likewise,
both sides of a securities lending and
borrowing transaction will be subject to
explicit capital charges, as will the posting
of securities in connection with a
derivative exposure or other borrowing.
Banking book
32. Where banks take eligible
collateral, as listed in paragraph 34, and
satisfies the requirements under
paragraphs 27 to 31, they are allowed to
apply the risk weight of the collateral to
the collateralized portion of the credit

exposure (equivalent to the fair market
value of recognized collateral), subject to
a floor of twenty percent (20%). The
twenty percent (20%) floor shall not apply
and a zero percent (0%) risk weight can
be applied when the exposure and the
collateral are denominated in the same
currency, and either:
a) The collateral is cash as defined in
paragraph 34.a; or
b) The collateral is a sovereign debt
security eligible for zero percent (0%) risk
weight, or a Php-denominated debt
obligation issued by the Philippine NG or
the BSP, which fair market value has been
discounted by twenty percent (20%).
33. For collateral to be recognized,
however, the collateral must be pledged
for at least the life of the exposure and it
must be marked to market and revalued
with a minimum frequency of every six
(6) months.
34. The following are the eligible
collateral instruments:
a) Cash (as well as certificates of
deposit or comparable instruments issued
by the lending bank) on deposit with the
bank which is incurring the counterparty
exposure;
b) Gold;
c) Debt obligations issued by the
Philippine NG or the BSP;
d) Debt securities issued by central
governments and central banks (and PSEs
treated as sovereigns) of foreign countries
as well as MDBs with at least investment
grade external credit ratings;
e) Other debt securities with external
credit ratings of at least BBB- or its equivalent;
f) Unrated senior debt securities
issued by banks with an issuer rating of at
least BBB- or its equivalent, or with other
debt issues of the same seniority with a
rating of at least BBB- or its equivalent;
g) Equities included in the main index
of an organized exchange; and
APP. 63b
08.12.31
h) Investments in Unit Investment

Trust Funds (UITF) and the Asian Bond
Fund 2 (ABF2) duly approved by the BSP.
period, daily marking to market and

daily remargining), expressed as
percentages:
Trading book
35. A credit risk capital requirement
should also be applied to banks
counterparty exposures in the trading
book (e.g., repo-style transactions, OTC
derivatives contracts). Where banks take
eligible collateral for these trading book
transactions, as listed in paragraph 34, and
satisfies the requirements under
paragraphs 27 to 31, they are to compute
for the credit risk capital requirement
according to the following paragraphs:
Provided, That, for repo-style transactions
in the trading book, all instruments which
are included in the trading book may be
used as eligible collateral.
36. For collateralized transactions in
the trading book, the exposure amount
after risk mitigation is calculated as follows:
E* = max {0, [E x (1 + He) C x (1 Hc
Hfx)]}
Haircut
Sovereign Other
(and PSEs Issuers
treated as
sovereign)
and MDB
(with 0%
risk weight)
issuers
0.5
Where:
E* = the exposure value after risk
mitigation
E = the current value of the exposure
H e = haircut appropriate to the exposure
C = the current value of the collateral
received
H c = haircut appropriate to the collateral
Hfx = haircut appropriate for currency
mismatch between the collateral
and exposure set at 8% (based on
a 10-business day holding period
and daily marking to market)
37. The treatment of transactions
where there is a maturity mismatch
between the maturity of the counterparty
exposure and the collateral is given in
paragraphs 50 to 54.
38. These are the haircuts to be used
(based on a 10-business day holding
Issue rating for

debt securities1
Residual
maturity
Php denomi<1 year

nated securities
issued by the
>1 yr. to < 5 yrs.
2
Philippine NG
> 5 years
4
and BSP
<1 year
0.5
1
AAA to AA>1 yr. to < 5 yrs.
2
4
> 5 years
4
8
A+ to BBB-/
<1 year
1
2
Unrated bank
>1 yr. to < 5 yrs.
3
6
debt securities
> 5 years
6
12
as defined in
paragraph 34.f
Equities inclu15
ded in the main
index and gold
UITF and ABF2
Highest haircut
applicable to any
security in which
the fund can invest
Cash per parag0
raph 34.a in the
same currency
Other financial
25
instruments in
the trading book
(applies to repostyle transactions
in the trading
book only)
39. Where the collateral is a basket of

assets, the haircut on the basket will be
H =ai Hi, where ai is the weight of the
asset in the basket and Hi is the haircut
applicable to that asset.
40. For collateralized OTC derivatives
transactions in the trading book, the credit
equivalent amount will be computed
according to paragraphs 18 to 19, but
adjusted by deducting the volatility
adjusted collateral amount as computed
according to paragraphs 36 to 39.
The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external
APP. 63b
08.12.31
41. The exposure amount after risk

mitigation will be multiplied by the risk
weight of the counterparty to obtain the
risk-weighted asset amount for the
collateralized transaction.
Guarantees
42. Where guarantees are direct,
explicit, irrevocable and unconditional,
banks may be allowed to take account of
such credit protection in calculating
43. A guarantee must represent a direct
claim on the protection provider and must
be explicitly referenced to specific
exposures or a pool of exposures, so that
the extent of the cover is clearly defined
and incontrovertible. Other than nonpayment by a protection purchaser of
money due in respect of the credit
protection contract, the guarantee must be
irrevocable; there must be no clause in the
contract that would allow the protection
provider unilaterally to cancel the credit
cover or that would increase the effective
cost of cover as a result of deteriorating
credit quality in the hedged exposure. It
must also be unconditional; there should
be no clause in the protection contract
outside the direct control of the bank that
could prevent the protection provider from
being obliged to pay out in a timely manner
in the event that the original counterparty
fails to make the payment(s) due.
44. In addition to the legal certainty
requirement in paragraph 22, in order for
a guarantee to be recognized, the
following conditions must be satisfied:
a) On the qualifying default/
non-payment of the counterparty, the bank
may in a timely manner pursue the
guarantor for any monies outstanding
under the documentation governing the
transaction. The guarantor may make one
lump sum payment of all monies under
such documentation to the bank, or the
guarantor may assume the future payment
obligations of the counterparty covered by
the guarantee. The bank must have the right

to receive any such payments from the
guarantor without first having to take legal
actions in order to pursue the counterparty
for payment;
b) The guarantee is an explicitly
documented obligation assumed by the
guarantor; and
c) The guarantee must cover all types
of payments the underlying obligor is
expected
to
make
under
the
documentation governing the transaction,
for example, notional amount, margin
payments, etc. Where a guarantee covers
payment of principal only, interests and
other uncovered payments should be
treated as an unsecured amount.
45. Where the banks exposure is
guaranteed by an eligible guarantor, as
listed in paragraph 47, and satisfies the
requirements under paragraphs 42 to 44,
the bank is allowed to apply the risk weight
of the guarantor to the guaranteed portion
of the credit exposure.
46. The treatment of transactions where
there is a mismatch between the maturity
of the counterparty exposure and the
guarantee is given in paragraphs 50 to 54.
47. The following are the eligible
guarantors:
a) Philippine NG and the BSP;
b) Central governments and central
banks and PSEs of foreign countries as well
as MDBs with a lower risk weight than the
counterparty;
c) Banks with a lower risk weight than
the counterparty; and
d) Other entities with external credit
assessment of at least A- or its equivalent.
48. Where a bank provides a credit
protection to another bank in the form of a
guarantee that a third party will perform
on its obligations, the risk to the guarantor
bank is the same as if the bank had entered
into the transaction as a principal. In such
circumstances, the guarantor bank will be
required to calculate capital requirement
on the guaranteed amount according to the
APP. 63b
08.12.31
risk weight corresponding to the third party

exposure. In this instance, and provided
the credit protection is deemed to be
legally effective, the credit risk is
considered transferred to the bank
providing credit protection. However, the
bank receiving credit protection on its
exposure to a third party shall recognize a
corresponding risk-weighted credit exposure
to the bank providing credit protection.
49. An exposure that is covered by a
guarantee that is counter-guaranteed by the
Philippine NG or BSP, may be considered
as covered by the guarantee of the
Philippine NG or BSP: Provided, That:
a) the counter-guarantee covers all
credit risk element of the exposure;
b) both the original guarantee and the
counter-guarantee meet all operational
requirements for guarantees, except that
the counter guarantee need not be direct
and explicit to the original exposure; and
c) the cover is robust and that no
historical evidence suggests that the
coverage of the counter-guarantee is less
than effectively equivalent to that of a direct
guarantee of the Philippine NG and BSP.
Currently, Php-denominated exposures
to the extent guaranteed by Industrial
Guarantee and Loan Fund (IGLF), Home
1\
Guaranty Corporation (HGC) , and Trade and
Investment Development Corporation of the
Philippines (TIDCORP), which guarantees
are counter-guaranteed by the Philippine NG
receive zero percent (0%) risk weight.
Maturity mismatch
50. For collateralized transactions in the
trading book and guaranteed transactions,
the credit risk mitigating effects of such
transactions will still be recognized even
if a maturity mismatch occurs between the
hedge and the underlying exposure,
subject to appropriate adjustments.
51. For purposes of calculating
risk-weighted assets, a maturity mismatch
occurs when the residual maturity of a hedge

is less than that of the underlying exposure.
52. The maturity of the hedge and the
maturity of the underlying exposure should
both be defined conservatively. For the
hedge, embedded options which may
reduce the term of the hedge should be
taken into account so that the shortest
possible effective maturity is used. Where
a call is at the discretion of the guarantor/
protection seller, the maturity will always
be at the first call date. If the call is at the
discretion of the protection buying bank
but the terms of the arrangement at
origination of the hedge contain a positive
incentive for the bank to call the transaction
before contractual maturity, the remaining
time to the first call date will be deemed
to be the effective maturity. For example,
where there is a step-up in cost in
conjunction with a call feature or where
the effective cost of cover increases over
time even if credit quality remains the
same or increases, the effective maturity
will be the remaining time to the first call.
The effective maturity of the underlying,
on the other hand, should be gauged as
the longest remaining time before the
counterparty is scheduled to fulfill its
obligation, taking into account any
applicable grace period.
53. Hedges with maturity mismatches
are only recognized when their original
maturities are greater than or equal to one
year. As a result, the maturity of hedges for
exposures with original maturities of less
than one (1) year must be matched to be
recognized. In all cases, hedges will no
longer be recognized when they have a
residual maturity of three months or less.
54. When there is a maturity mismatch
with recognized credit risk mitigants, the
following adjustment will be applied.
Pa = P x (t 0.25)/(T 0.25)
Where:
Pa = value of the credit protection
adjusted for maturity mismatch
1\
Housing microfinance loans under Sec. X361.5 to the extent guaranteed by the HGC, shall be subject to a zero percent
(0%) risk weight.
APP. 63b
08.12.31
P = credit protection (e.g., collateral

amount, guarantee amount)
adjusted for any haircuts
t = min (T, residual maturity of the
credit protection arrangement)
expressed in years
T = min (5, residual maturity of the
exposure) expressed in years
International credit assessment agencies:

a) Standard & Poors;
b) Moodys;
c) Fitch Ratings; and
d) Such other rating agencies as may
Domestic credit assessment agencies:
a) PhilRatings; and
b) Such other rating agencies as may
C. Use of third party credit assessments
55. The following third party credit
56. The tables below set out the mapping
assessment agencies are recognized
of ratings given by the recognized credit
by the BSP for regulatory capital
assessment agencies for purposes of
determining the appropriate risk weights:
purposes:
Agency
INTERNATIONAL RATINGS
S&P
AAA
AA+
AA
AAA+
A
AMoodys
Aaa
Aa1
Aa2
Aa3
A1
A2
A3
Fitch
AAA
AA+
AA
AAA+
A
AAgency
PhilRatings
AAA
Aa+
Agency
S&P
Moodys
Fitch
BBB+
Baa1
BBB+
BBB
Baa2
BBB
Agency
PhilRatings
Agency
S&P
Moody's
Fitch
Agency
PhilRatings
Baa+
Baa
B
B2
B
BB3
B-
DOMESTIC RATINGS
Aa
AaA+
BBBBB+
BB
BBBaa3
Ba1
Ba2
Ba3
BBBBB+
BB
BBDOMESTIC RATINGS
BaaBa+
Ba
Ba-
AB+
B1
B+
B+
DOMESTIC RATINGS
B
B-
57. The BSP will issue the mapping of

ratings of other rating agencies as soon as
it is recognized by the BSP for regulatory
capital purposes.
National Rating Systems
58. With prior BSP approval,
international credit rating agencies may
have national rating systems developed
exclusively for use in the Philippines using
the Philippine sovereign as reference

highest credit quality anchor.
Multiple Assessments
59. If an exposure has only one rating
by any of the BSP recognized credit
assessment agencies, that rating shall be
used to determine the risk weight of the
exposure; in cases where there are two or
more ratings which map into different risk
APP. 63b
08.12.31
weights, the higher of the two lowest risk

weights should be used.
Issuer versus issue assessments
60. Any reference to credit rating shall
refer to issue-specific rating; the issuer
rating may be used only if the exposure
being risk-weighted is:
a) an unsecured senior obligation of
the issuer and is of the same denomination
applicable to the issuer rating (e.g., local
currency issuer rating may be used for risk
weighting local currency denominated
senior claims);
b) short-term; and
c) in cases of guarantees.
61. For loans, risk weighting shall
depend on either the rating of the borrower
or the rating of the unsecured senior
obligation of the borrower: Provided, That
in case of the latter, the loan is of the same
currency denomination as the unsecured
senior obligation.
Domestic versus international debt
issuances
62. Domestic debt issuances may be
rated by BSP-recognized domestic credit
assessment agencies or by international
credit assessment agencies which have
developed a national rating system
acceptable to the BSP. Internationallyissued debt obligations shall be rated by
BSP-recognized international credit
assessment agencies only.
Level of application of the assessment
63. External credit assessments for one
entity within a corporate group cannot be
used to proxy for the credit assessment of
other entities within the same group. Such
other entities should secure their own ratings.
Part IV. Credit Derivatives
1. This Part sets out the capital
treatment for credit derivatives. Banks may
use credit derivatives to mitigate its credit

risks or to acquire credit risks. For credit
derivatives that are used as credit risk
mitigants (CRM), the general requirements
for the use of CRM techniques in paragraphs
21 to 25, Part III.B, have to be satisfied, in
addition to the specific operational
requirements for credit derivatives in
paragraphs 8 to 14.
2. The contents of this Part are just the
general rules to be followed in computing
capital requirements for credit derivatives.
A bank, therefore, is expected to consult
the BSP-SES when there is uncertainty
about the computation of capital
requirements, or even about whether a
given transaction should be treated under
the credit derivatives framework.
A. Definitions and general terminology
3. Credit derivative a contract
wherein one party called the protection
buyer or credit risk seller transfers the
credit risk of a reference asset or assets
issued by a reference entity or entities,
which it may or may not own, to another
party called the protection seller or credit
risk buyer. In return, the protection buyer
pays a premium or interest-related payments
to the protection seller reflecting the
underlying credit risk of the reference
asset/s. Credit derivatives may refer to
credit default swaps (CDS), total return
swaps (TRS), and credit-linked notes (CLN)
and similar products.
4. Credit default swap a credit
derivative wherein the protection buyer
may exchange the reference asset or any
deliverable obligation of the reference
entity for cash equal to a specified amount,
or get compensated to the extent of the
difference between the par value and
market value of the asset upon the
occurrence of a defined credit event.
5. Total return swap a credit
derivative wherein the protection buyer
exchanges the actual collections and
APP. 63b
08.12.31
variations in the prices of the reference

asset with the protection seller in return
for a fixed premium.
6. Credit-linked note a pre-funded
credit derivative wherein the note holder
acts as a protection seller while the note
issuer is the protection buyer. As such, the
repayment of the principal to the note
holder is contingent upon the nonoccurrence of a defined credit event. All
references to CLNs shall be taken to
generically include similar instruments,
such as credit-linked deposits (CLDs).
7. Special purpose vehicle refers to
an entity specifically established to issue
CLNs of a single, homogeneous risk class
that are fully collateralized as to principal
by eligible collateral instruments listed in
paragraph 34, Part III.B, and which are
purchased out of the proceeds of the note
issuance.
B. Operational requirements for credit
derivatives
8. A credit derivative must represent a
direct claim on the protection seller and
must be explicitly referenced to specific
exposures or a pool of exposures, so that
the extent of the cover is clearly defined and
incontrovertible. Other than non-payment
by a protection buyer of money due in
respect of the credit derivative contract, it
must be irrevocable; there must be no
clause in the contract that would allow the
protection seller unilaterally to cancel the
credit cover or that would increase the
effective cost of cover as a result of
deteriorating credit quality in the hedged
exposure. It must also be unconditional;
there should be no clause in the credit
derivative contract outside the direct control
of the protection buyer that could prevent
the protection seller from being obliged
to pay out in a timely manner in the event
of a defined credit event.
9. The credit events specified by the
contracting parties must at a minimum
cover:
a) failure to pay the amounts due

under terms of the underlying obligation
that are in effect at the time of such failure
(with a grace period that is closely in line
with the grace period in the underlying
obligation);
b) bankruptcy, insolvency or inability
of the obligor to pay its debts, or its failure
or admission in writing of its inability
generally to pay its debts as they become
due, and analogous events; and
c) restructuring of the underlying
obligation involving forgiveness or
postponement of principal, interest or fees
that results in a credit loss event
(i.e., charge-off, specific provision or other
similar debit to the profit and loss account).
10. The credit derivative shall not
terminate prior to expiration of any grace
period required for a default on the
underlying obligation to occur as a result
of a failure to pay, subject to the provisions
of paragraph 52 of Part III.B.
11. Credit derivatives allowing for cash
settlement are recognized for capital
purposes insofar as a robust valuation
process is in place in order to estimate loss
reliably. There must be a clearly specified
period for obtaining post-credit event
valuations of the underlying obligation.
12. If the protection buyers right or
ability to transfer the underlying obligation
to the protection seller is required for
settlement, the terms of the underlying
obligation must provide that any required
consent to such transfer may not be
unreasonably withheld.
13. The identity of the parties
responsible for determining whether a
credit event has occurred must be clearly
defined. This determination must not be
the sole responsibility of the protection
seller. The bank as protection buyer must
have the right/ability to inform the
protection seller of the occurrence of a
credit event.
14. Asset mismatches (underlying
obligation is different from the obligation
APP. 63b
08.12.31
used for purposes of determining cash

settlement or the deliverable obligation, or
from the obligation used for purposes of
determining whether a credit event has
occurred) are permissible if:
a) the obligation used for purposes of
determining cash settlement or the
deliverable obligation, or the obligation
used for purposes of determining whether
a credit event has occurred ranks pari passu
with or is junior to the underlying
obligation; and
b) both obligations share the same
obligor (i.e., the same legal entity) and
legally enforceable cross-default or
cross-acceleration clauses are in place.
C. Capital treatment for protection
buyers
15. A bank that enters into a credit
derivative transaction as a protection buyer
in order to hedge an existing exposure in
the banking book may only get capital relief
if all the general requirements for the use of
CRM techniques in paragraphs 21 to 25, Part
III.B and the conditions in paragraphs 8 to
14 are satisfied. In addition, only the eligible
guarantors listed in paragraph 47, Part III.B
are considered as eligible protection sellers.
16. If all of the conditions in paragraph
15 are satisfied, banks that are protection
buyers may apply the risk weight of the
protection seller to the protected portion of
the exposure being hedged. The risk weight
of the protection seller should therefore be
lower than the risk weight of the exposure
being hedged for capital relief to be
recognized. Exposures that are protected
through the issuance of CLNs will be treated
as transactions collateralized by cash and a
zero percent (0%) risk weight is applied to
the protected portion. The uncovered
portion shall retain the risk weight of the
banks underlying counterparty.
17. The protected portion of an
exposure is measured as follows:
a) The fixed amount, if such is to be

paid upon the occurrence of a credit
event; or
b) The notional value of the contract
if either (1) par is to be paid in exchange
for physical delivery of the reference asset,
or (2) par less market value of the asset is
to be paid upon the occurrence of a credit
event.
18. A bank may obtain credit
protection for a basket of reference entities
where the contract terminates and pays out
on the first entity to default. In this case,
the bank may substitute the risk weight of
the protection seller for the risk weight of
the asset within the basket with the lowest
risk-weighted amount, but only if the
notional amount is less than or equal to
the notional amount of the credit
derivative.
19. Where the contract terminates and
pays out on the nth (other than the first)
entity to default, the bank will only be able
to recognize any reductions in the risk
weight of the underlying asset if (n-1)th
default-protection has also been obtained
or when n-1 of the assets within the basket
has already defaulted.
20. Where the contract is referenced to
entities in the basket proportionately,
reductions in the risk weight will only
apply to the extent of the underlying
assets share of protection in the contract.
21. When a bank conducts an internal
hedge using a credit derivative
(i.e., hedging the credit risk of an exposure
in the banking book with a credit derivative
booked in the trading book), in order for
the bank to receive any reduction in the
capital requirement for the exposure in the
banking book, the credit risk in the trading
book must be transferred to an outside third
party (i.e., an eligible protection seller).
22. Where a bank buys credit
protection through a TRS and records the
net payments received on the swap as net
APP. 63b
08.12.31
income, but does not record offsetting

deterioration in the value of the asset that
is protected (either through reductions in
fair value or by an addition to reserves), the
credit protection will not be recognized.
23. Materiality thresholds on payments
below which no payment is made in the
event of loss are equivalent to retained first
loss positions and must be deducted in full
from the capital of the bank buying the
credit protection.
24. Where the credit protection is
denominated in a currency different from that
in which the exposure is denominated i.e.,
there is a currency mismatch the protected
portion of the exposure will be reduced by
the application of a haircut, as follows:
Ga = G x (1 Hfx)
Where:
Ga = adjusted protected portion of the
exposure
G = protected portion of the exposure prior
to haircut
Hfx = haircut appropriate for currency
mismatch between the credit protection
and underlying obligation set at eight
percent (8%) (based on a 10-business
day holding period and daily marking
to market)
25. Where a maturity mismatch occurs

between the credit protection and the
underlying exposure, the protected portion
of the exposure adjusted for maturity
mismatch will be computed according to
paragraph 50 to 54, Part III.B.
D. Capital treatment for protection sellers
26. Where a bank is a protection seller
in a CDS or TRS transaction, it must
calculate a capital requirement on the
reference asset as if it were a direct investor
in the reference asset. The risk weight of
the reference asset is multiplied by the
nominal amount of the protection
provided by the credit derivative to obtain
the risk-weighted exposure.
27. For a bank holding a CLN, credit

exposure is acquired on two fronts. As
such, the on-balance sheet exposure
arising from the note should be weighted
by adding the risk weights of the reference
entity and the risk weight of the note
issuer. The amount of exposure is the
carrying amount of the note. If the CLN
principal is fully collateralized by an
eligible collateral listed in paragraph 34,
Part III.B, and which satisfies the
requirements in paragraphs 27 to 31, Part
III.B, the risk weight of the note issuer is
substituted with the risk weight associated
with the relevant collateral.
28. When the credit derivative is
referenced to a basket of reference entities
and the contract terminates and pays out
on the first entity to default in the basket,
capital should be held to consider the
cumulative risk of all the reference entities
in the basket. This means that the risk
weights of all the reference entities are
added up and multiplied by the amount
of the protection provided by the credit
derivative to obtain the risk-weighted
exposure to the basket. However, the riskweighted exposure is capped at ten (10)
times the protection provided under the
contract. Accordingly, the maximum
capital charge is 100% of the protection
provided under the contract. The multiplier
ten (10) is the reciprocal of the BSPrequired minimum CAR of ten percent
(10%). For CLNs, the risk weight of the
issuer is likewise included in the summing
of the risk weights.
29. When the contract terminates and
th
pays out on the n (other than the first)
entity to default, the treatment above shall
apply except that in aggregating the risk
weights of the reference entities, the risk
weight/s of the n-1 lowest risk-weighted
entity/ies is/are excluded from the
computation. For CLNs, the risk weight
of the issuer is likewise included in the
summing of the risk weights.
APP. 63b
08.12.31
th
30. When a first or an n -to-default

credit derivative has an external credit
rating acceptable to the BSP, the risk weight
in paragraph 21, Part V.F will be applied.
31. A contract that is referenced to
entities in the basket proportionately should
be risk-weighted according to each
reference entitys share of protection under
the contract.
E. Credit derivatives in the trading book
32. The following describes the
positions to be reported for credit
derivative transactions for purposes of
calculating specific risk and general market
risk charges under the standardized
approach.
33. A CDS creates a notional position
in the specific risk of the reference
obligation. A TRS creates notional positions
on the specific and general market risks of
the reference obligation, and an opposite
notional position on a zero coupon
government security representing the fixed
payments or premium under the TRS. A CLN
creates a notional position in the specific
risk of the reference obligation, a position
on the specific risk associated with the
issuer, and a position on the general market
risk of the note.
Specific risk
34. The specific risk position/s on the
reference obligation/s created by credit
derivatives are reported as short positions
by protection buyers and long positions by
protection sellers. In addition, holders of
CLNs should report a long position on the
specific risk of the note issuer.
35. The protection buyer in a first-todefault transaction should report a short
position in the reference obligation with
the lowest specific risk charge. A protection
th
buyer in an n (other than the first)-todefault transaction shall only be allowed
to report a short position in a reference
obligation only if n-1 obligations in the
reference basket has/have already

defaulted.
36. When a credit derivative is
referenced to multiple entities and the
contract terminates and pays out on the first
obligation to default in the basket, the
transaction should be reported by the
protection seller as long positions in each
of the reference obligations in the basket.
A CLN should likewise be reported as a
long position on the note issuer. The total
capital charge is capped at the notional
amount of the derivative or, in the case of
a CLN, the carrying amount of the note.
37. When the contract terminates and
th
pays out on the n (other than the first)
entity to default in the basket, the
treatment above shall apply except that the
protection seller may exclude the long
position/s on n-1 reference obligations with
the lowest risk-weighted exposures in its
report. A CLN should likewise be reported
as a long position on the note issuer. The
total capital charge is capped at the notional
amount of the derivative or, in the case of
a CLN, the carrying amount of the note.
th
38. When an n -to-default credit
derivative has an external credit rating
acceptable to the BSP, the specific risk
weights in Part VI.B will be applied.
39. When the contract is referenced to
multiple obligations under a proportionate
structure, positions in the reference
obligations should be reported according
to their respective proportions in the
contract.
General market risk
40. A protection buyer/seller in a TRS
should report a short/long notional position
on the reference obligation and a long/
short notional position on a zero coupon
government security representing the
fixed payment under the contract.
41. A protection buyer/seller in a CLN
should report a short/long position on the
note.
APP. 63b
08.12.31
Counterparty credit risk

42. CDS and TRS transactions in the
trading book attract counterparty credit risk
charges. A five percent (5%) add-on factor
for the computation of the potential future
credit exposure shall be used by both
protection buyers and protection sellers if
the reference obligation has an external
credit rating of at least BBB- or its equivalent.
A ten percent (10%) add-on factor applies
to all other reference obligations. However,
a protection seller in a CDS shall only be
subject to the add-on factor if it is subject to
closeout upon the insolvency of the
protection buyer while the underlying is still
solvent. The add-on in this case should be
capped to the amount of unpaid premiums.
43. Where the credit derivative is a first
to default transaction, the add-on will be
determined by the lowest credit quality
underlying in the basket, i.e., if there are
any non-investment grade or unrated items
in the basket, the ten percent (10%) add-on
should be used. For second and subsequent
to default transactions, underlying assets
should continue to be allocated according
to the credit quality, i.e., the second lowest
credit quality will determine the add-on
for a second to default transaction, etc.
44. Where the credit derivative is
referenced proportionately to multiple
obligations, the add-on factor will follow
the add-on factor applicable for the
obligation with the biggest share. If the
protection is equally proportioned, the
highest add-on factor should be used.
Part V. Securitization
1. Banks must apply the securitization
framework for determining regulatory
capital requirements on their securitization
exposures. Securitization exposures can
include but are not restricted to the
following: asset-backed securities,
mortgage-backed securities, credit
enhancements, liquidity facilities, interest
rate or currency swaps, and credit

derivatives. Underlying instruments in the
pool being securitized may include but are
not restricted to the following: loans,
commitments, asset-backed and mortgagebacked securities, corporate bonds, equity
securities, and private equity investments.
2. Since securitizations may be
structured in many different ways, the capital
treatment of a securitization exposure must
be determined on the basis of its economic
substance rather than its legal form. The
contents of this Part are just the general rules
to be followed in computing capital
requirements for securitization exposures.
A bank should therefore consult the BSPSES when there is uncertainty about the
computation of capital requirements, or
even about whether a given transaction
should be considered a securitization.
A. Definitions and general terminology
3. Traditional securitization a
structure where the cash flow from an
underlying pool of exposures is used to
service at least two (2) different stratified
risk positions or tranches reflecting
different degrees of credit risk. Payments
to the investors depend upon the
performance of the specified underlying
exposures, as opposed to being derived
from an obligation of the entity originating
those exposures. The stratified/tranched
structures that characterize securitizations
differ from ordinary senior/subordinated
debt instruments in that junior
securitization tranches can absorb losses
without interrupting contractual payments
to more senior tranches, whereas
subordination in a senior/subordinated debt
structure is a matter of priority of rights to
the proceeds of liquidation.
4. Synthetic securitization a
structure with at least two (2) different
stratified risk positions or tranches that
reflect different degrees of credit risk
where credit risk of an underlying pool of
APP. 63b
08.12.31
exposures is transferred, in whole or in part,

through the use of funded (e.g., credit-linked
notes) or unfunded (e.g., credit default
swaps) credit derivatives or guarantees that
serve to hedge the credit risk of the portfolio.
Accordingly, the investors potential risk is
dependent upon the performance of the
underlying pool.
5. Originating bank a bank that
originates directly or indirectly underlying
exposures included in the securitization.
6. Clean-up call an option that
permits the securitization exposures to be
called before all of the underlying
exposures or securitization exposures
have been repaid. In the case of traditional
securitizations, this is generally
accomplished by repurchasing the
remaining securitization exposures once the
pool balance or outstanding securities have
fallen below some specified level. In the
case of a synthetic transaction, the clean-up
call may take the form of a clause that
extinguishes the credit protection.
7. Credit enhancement a contractual
arrangement in which the bank retains or
assumes a securitization exposure and, in
substance, provides some degree of added
protection to other parties to the transaction.
8. Early amortization provisions
mechanisms that, once triggered, allow
investors to be paid out prior to the originally
stated maturity of the securities issued. For
risk-based capital purposes, an early
amortization provision will be considered
either controlled or non-controlled. A
controlled early amortization provision must
meet all of the following conditions:
a) The bank must have an appropriate
capital/liquidity plan in place to ensure that
it has sufficient capital and liquidity
available in the event of an early
amortization;
b) Throughout the duration of the
transaction, including the amortization
period, there is the same pro rata sharing
of interest, principal, expenses, losses and
recoveries based on the banks and
investors relative shares of the receivables

outstanding at the beginning of each month;
c) The bank must set a period for
amortization that would be sufficient for
at least ninety percent (90%) of the total
debt outstanding at the beginning of the
early amortization period to have been
repaid or recognized as in default; and
d) The pace of repayment should not
be any more rapid than would be allowed
by straight-line amortization over the
period set out in criterion (c).
An early amortization provision that
does not satisfy the conditions for a
controlled early amortization provision
will be treated as non-controlled early
amortization provision.
9. Eligible liquidity facilities an offbalance sheet securitization exposure shall
be treated as an eligible liquidity facility if
the following minimum requirements are
satisfied:
a) The facility documentation must
clearly identify and limit the circumstances
under which it may be drawn. Draws
under the facility must be limited to the
amount that is likely to be repaid fully from
the liquidation of the underlying exposures
and any seller-provided credit
enhancements. In addition, the facility
must not cover any losses incurred in the
underlying pool of exposures prior to a
draw, or be structured such that drawdown is certain (as indicated by regular or
continuous draws);
b) The facility must be subject to an
asset quality test that precludes it from
being drawn to cover credit risk exposures
that are considered non-performing under
existing BSP regulations. In addition,
liquidity facilities should only fund
exposures that are externally rated
investment grade at the time of funding;
c) The facility cannot be drawn after
all applicable (e.g., transaction-specific and
program-wide) credit enhancements from
which the liquidity would benefit have
been exhausted; and
APP. 63b
08.12.31
d) Repayment of draws on the facility

(i.e., assets acquired under a purchase
agreement or loans made under a lending
agreement) must not be subordinated to
any interests of any note holder in the
program or subject to deferral or waiver.
10. Eligible servicer cash advance
facilities cash advance that may be
provided by servicers to ensure an
uninterrupted flow of payments to
investors. The servicer should be entitled
to full reimbursement and this right is
senior to other claims on cash flows from
the underlying pool of exposures.
11. Excess spread generally defined
as gross finance charge collections and
other income received by the trust or
special purpose entity (SPE, specified in
paragraph 13) minus certificate interest,
servicing fees, charge-offs, and other
senior trust or SPE expenses.
12. Implicit support arises when a bank
provides support to a securitization in excess
of its predetermined contractual obligation.
13. Special purpose entity a
corporation, trust, or other entity
organized for a specific purpose, the
activities of which are limited to those
appropriate to accomplish the purpose of
the SPE, and the structure of which is
intended to isolate the SPE from the credit
risk of an originator or seller of exposures.
SPEs are commonly used as financing
vehicles in which exposures are sold to a
trust or similar entity in exchange for cash
or other assets funded by debt issued by
the trust.
B. Operational requirements for the
recognition of risk transference in
traditional securitizations
14. An originating bank may exclude
securitized exposures from the calculation
of risk-weighted assets only if all of the
following conditions have been met.
Banks meeting these conditions, however,
must still hold regulatory capital against
any securitization exposures they retain.
a) Significant credit risk associated

with the securitized exposures has been
transferred to third parties.
b) The transferor does not maintain
effective or indirect control over the
transferred exposures. The assets are
legally isolated from the transferor in such
a way (e.g., through the sale of assets or
through subparticipation) that the
exposures are put beyond the reach of the
transferor and its creditors, even in
bankruptcy or receivership. These
conditions must be supported by an opinion
provided by a qualified legal counsel.
The transferor is deemed to have
maintained effective control over the
transferred credit risk exposures if it:
i. is able to repurchase from the
transferee the previously transferred
exposures in order to realize their benefits; or
ii. is obligated to retain the risk of the
transferred exposures.
The transferors retention of servicing
rights to the exposures will not necessarily
constitute indirect control of the exposures.
c) The securities issued are not
obligations of the transferor. Thus, investors
who purchase the securities only have
claim to the underlying pool of exposures.
d) The transferee is an SPE and the
holders of the beneficial interests in that
entity have the right to pledge or exchange
them without restriction.
e) Clean-up calls must satisfy the
conditions set out in paragraph 17.
f) The securitization does not contain
clauses that (i) require the originating bank
to alter systematically the underlying
exposures such that the pools weighted
average credit quality is improved unless
this is achieved by selling assets to
independent and unaffiliated third parties
at market prices; (ii) allow for increases in
a retained first loss position or credit
enhancement provided by the originating
bank after the transactions inception; or
(iii) increase the yield payable to parties other
than the originating bank, such as investors
APP. 63b
08.12.31
and third-party providers of credit

enhancements, in response to a deterioration
in the credit quality of the underlying pool.
C. Operational requirements for the
recognition of risk transference in synthetic
securitizations
15. For synthetic securitizations, the
use of CRM techniques (i.e., collateral,
guarantees and credit derivatives) for
hedging the underlying exposure may be
recognized for risk-based capital purposes
only if the conditions outlined below are
satisfied:
a) Credit risk mitigants must comply
with the requirements as set out in Part III.B
and Part IV of this Framework.
b) Eligible collateral is limited to that
specified in paragraph 34, Part III.B. Eligible
collateral pledged by SPEs may be
recognized.
c) Eligible guarantors are defined in
paragraph 47, Part III.B. SPEs are not
recognized as eligible guarantors in the
securitization framework.
d) Banks must transfer significant credit
risk associated with the underlying exposure
to third parties.
e) The instruments used to transfer
credit risk must not contain terms or
conditions that limit the amount of credit risk
transferred, such as those provided below:
i. Clauses that materially limit the
credit protection or credit risk transference
(e.g., significant materiality thresholds below
which credit protection is deemed not to
be triggered even if a credit event occurs or
those that allow for the termination of the
protection due to deterioration in the credit
quality of the underlying exposures);
ii. Clauses that require the originating
bank to alter the underlying exposures to
improve the pools weighted average
credit quality;
iii. Clauses that increase the banks
cost of credit protection in response to
deterioration in the pools quality;
iv. Clauses that increase the yield

payable to parties other than the originating
bank, such as investors and third-party
providers of credit enhancements, in
response to a deterioration in the credit
quality of the reference pool; and
v. Clauses that provide for increases
in a retained first loss position or credit
enhancement provided by the originating
bank after the transactions inception.
f) An opinion must be obtained from
a qualified legal counsel that confirms the
enforceability of the contracts in all relevant
jurisdictions.
g) Clean-up calls must satisfy the
conditions set out in paragraph 17.
16. For synthetic securitizations, the
effect of applying CRM techniques for
hedging the underlying exposure are
treated according to Part III.B and Part IV
of this Framework. In case there is a
maturity mismatch, the capital requirement
will be determined in accordance with
paragraphs 50 to 54, Part III.B. When the
exposures in the underlying pool have
different maturities, the longest maturity
must be taken as the maturity of the pool.
Maturity mismatches may arise in the
context of synthetic securitizations when,
for example, a bank uses credit derivatives
to transfer part or all of the credit risk of a
specific pool of assets to third parties. When
the credit derivatives unwind, the
transaction will terminate. This implies that
the effective maturity of the tranches of the
synthetic securitization may differ from that
of the underlying exposures. Originating
banks of synthetic securitizations with such
maturity mismatches must deduct all
retained positions that are unrated or rated
below investment grade. Accordingly,
when deduction is required, maturity
mismatches are not taken into account. For
all other securitization exposures, the bank
must apply the maturity mismatch
treatment set forth in paragraphs 50 to 54,
Part III.B.
APP. 63b
08.12.31
D. Operational requirements and

treatment of clean-up calls
17. For securitization transactions that
include a clean-up call, no capital will be
required due to the presence of a clean-up
call if the following conditions are met:
(i) the exercise of the clean-up call must
not be mandatory, in form or in substance,
but rather must be at the discretion of the
originating bank; (ii) the clean-up call must
not be structured to avoid allocating losses
to credit enhancements or positions held
by investors or otherwise structured to
provide credit enhancement; and (iii) the
clean-up call must only be exercisable
when ten percent (10%) or less of the
original underlying portfolio, or securities
issued remain, or, for synthetic
securitizations, when ten percent (10%) or
less of the original reference portfolio
value remains.
18. Securitization transactions that
include a clean-up call that does not meet
all of the criteria stated in paragraph 17
result in a capital requirement for the
originating bank. For a traditional
securitization, the underlying exposures
must be treated as if they were not
securitized. Additionally, banks must not
recognize in regulatory capital any gainon-sale, as defined in paragraph 23. For
synthetic securitization, the bank
purchasing protection must hold capital
against the entire amount of the securitized
exposures as if they did not benefit from
any credit protection. Same treatment
applies for synthetic securitization that
incorporates a call, other than a clean-up
call, that effectively terminates the
transaction and the purchased credit
protection on a specified date.
19. If a clean-up call, when exercised,
is found to serve as a credit enhancement,
the exercise of the clean-up call must be
considered a form of implicit support
provided by the bank and must be treated
in accordance with paragraph 26.
E. Operational requirements for use of

external credit assessments
20. The following operational criteria
concerning the use of external credit
assessments apply in the securitization
framework:
a) To be eligible for risk-weighting
purposes, the external credit assessment
must take into account and reflect the entire
amount of credit risk exposure the bank
has with regard to all payments owed to it.
For example, if a bank is owed both
principal and interest, the assessment must
fully take into account and reflect the credit
risk associated with timely repayment of
both principal and interest.
b) The external credit assessments
must be from an eligible ECAI as
recognized by the banks national
supervisor in accordance with Part III.C. An
eligible credit assessment must be publicly
available. In other words, a rating must be
published in an accessible form and
included in the ECAIs transition matrix.
Consequently, ratings that are made
available only to the parties to a transaction
do not satisfy this requirement.
c) Eligible ECAIs must have a
demonstrated expertise in assessing
securitizations, which may be evidenced
by strong market acceptance.
d) A bank must apply external credit
assessments from eligible ECAIs consistently
across a given type of securitization
exposure. Furthermore, a bank cannot use
the credit assessments issued by one ECAI
for one or more tranches and those of
another ECAI for other positions (whether
retained or purchased) within the same
securitization structure that may or may not
be rated by the first ECAI. Where two or
more eligible ECAIs can be used and these
assess the credit risk of the same
securitization exposure differently,
paragraph 59 of Part III.C will apply.
e) Where CRM is provided directly to
an SPE by an eligible guarantor defined in
APP. 63b
08.12.31
paragraph 47 of Part III.B and is reflected

in the external credit assessment assigned
to a securitization exposure(s), the risk
weight associated with that external credit
assessment should be used. In order to
avoid any double counting, no additional
capital recognition is permitted. If the CRM
provider is not an eligible guarantor, the
covered securitization exposures should
be treated as unrated.
f) In the situation where a credit risk
mitigant is not obtained by the SPE but rather
applied to a specific securitization exposure
within a given structure (e.g., ABS tranche),
the bank must treat the exposure as if it is
unrated and then use the CRM treatment
outlined in Part III.B to recognize the hedge.
F. Risk-weighting
21. The risk-weighted asset amount of
a securitization exposure is computed by
multiplying the amount of the position by
the appropriate risk weight determined in
accordance with the following table. For
off-balance sheet exposures, banks must
apply a credit conversion factor (CCF) and
then risk weight the resultant credit
equivalent amount.
Credit
AAA to A+ to A- BBB+to Below BBBassessment1 AABBB- and unrated
Risk weight 20%
50%
100%
Deduction
from capital
(50% from Tier
1 and 50%
from Tier 2)
22. The capital treatment of implicit

support, liquidity facilities, securitizations
of revolving exposures, and credit risk
mitigants are identified separately.
23. Banks must deduct from Tier 1
capital any increase in equity capital
resulting from a securitization transaction,
such as that associated with expected
future margin income resulting in a
gain-on-sale that is recognized in

regulatory capital. Such an increase in
capital is referred to as a gain-on-sale
for the purposes of the securitization
framework.
24. Credit enhancing IOs (interest
only), net of the amount that must be
deducted from Tier 1 as in paragraph 23,
are to be deducted fifty percent (50%) from
Tier 1 capital and fifty percent (50%) from
Tier 2 capital.
25. Deductions from capital may be
calculated net of any specific provisions
taken against the relevant securitization
exposures.
26. When a bank provides implicit
support to a securitization, it must, at a
minimum, hold capital against all of the
exposures associated with the
securitization transaction as if they had not
been securitized. Additionally, banks
would not be permitted to recognize in
regulatory capital any gain-on-sale, as
defined in paragraph 23. Furthermore, the
bank is required to disclose publicly that
(a) it has provided non-contractual support
and (b) the capital impact of doing so.
27. As a general rule, off-balance
sheet securitization exposures will
receive a CCF of 100%, except in the
cases below.
28. A CCF of twenty percent (20%)
and fifty percent (50%) will be applied to
eligible liquidity facilities as defined in
paragraph 9 above with original maturity
of one year or less and more than one
year, respectively. However, if an
external rating of the facility itself is used
for risk weighting the facility, a 100% CCF
must be applied. A zero percent (0%) CCF
may be applied to eligible liquidity
facilities that are only available in the
event of a general market disruption (i.e.,
whereupon more than one SPE across
different transactions are unable to roll
The notations follow the rating symbols used by Standard & Poor's. The mapping of ratings of all recognized external
APP. 63b
08.12.31
over maturing commercial paper, and that

inability is not the result of an impairment
in the SPEs credit quality or in the credit
quality of the underlying exposures). To
qualify for this treatment, the conditions
provided in paragraph 9 must be satisfied.
Additionally, the funds advanced by the
bank to pay holders of the capital market
instruments (e.g., commercial paper) when
there is a general market disruption must
be secured by the underlying assets, and
must rank at least pari passu with the
claims of holders of the capital market
instruments.
29. A CCF of zero percent (0%) will
be applied to undrawn amount of eligible
servicer cash advance facilities, as defined
in paragraph 10 above, that are
unconditionally cancellable without prior
notice.
30. An originating bank is required to
hold capital against the investors interest
(i.e., against both the drawn and undrawn
balances related to the securitized
exposures) when:
a) It sells exposures into a structure that
contains an early amortization feature; and
b) The exposures sold are of a
revolving nature. These involve exposures
where the borrower is permitted to vary
the drawn amount and repayments within
an agreed limit under a line of credit (e.g.,
credit card receivables and corporate loan
commitments).
31. Originating banks, though, are not
required to calculate a capital requirement
for early amortizations in the following
situations:
a) Replenishment structures where
the underlying exposures do not revolve
and the early amortization ends the ability
of the bank to add new exposures;
b) Transactions of revolving assets
containing early amortization features that
mimic term structures (i.e., where the risk

of the underlying facilities does not return
to the originating bank);
c) Structures where a bank securitizes
one or more credit line(s) and where
investors remain fully exposed to future
draws by borrowers even after an early
amortization event has occurred; and
d) The early amortization clause is
solely triggered by events not related to the
performance of the securitized assets or the
selling bank, such as material changes in
tax laws or regulations.
32. As described below, the CCFs
depend upon whether the early
amortization repays investors through a
controlled or non-controlled mechanism.
They also differ according to whether the
securitized exposures are uncommitted
retail credit lines (e.g., credit card
receivables) or other credit lines (e.g.,
revolving corporate facilities). A line is
considered uncommitted if it is
unconditionally cancelable without prior
notice.
33. For uncommitted retail credit lines
(e.g., credit card receivables) that have either
controlled or non-controlled early
amortization features, banks must compare
the three-month average excess spread
defined in paragraph 11 to the point at
which the bank is required to trap excess
spread as economically required by the
structure (i.e., excess spread trapping point).
In cases where such a transaction does not
require excess spread to be trapped, the
trapping point is deemed to be 4.5
percentage points.
34. The bank must divide the excess
spread level by the transactions excess
spread trapping point to determine the
appropriate segments and apply the
corresponding conversion factors, as
outlined in the following tables:
APP. 63b
08.12.31
Controlled
3-month average Credit conversion
excess spreadfactor (CCF)
credit conversion
factor (CCF)
Retail credit lines
Non-controlled
3-month average
Credit conversion
excess spreadfactor (CCF)
credit conversion
factor (CCF)
Uncommitted
Committed
Uncommitted
133.33% of
trapping point or
more 0% CCF
90% CCF
133.33% of
trapping point or
more 0% CCF
less than 133.33%

to 100% of trapping
point 1% CCF
less than 133.33%

to 100% of trapping
point 5% CCF
less than 100% to

75% of trapping
point 2% CCF
less than 100% to

75% of trapping
point 15% CCF
less than 75% to

50% of trapping
point - 10% CCF
less than 75% to

50% of trapping
point - 50% CCF
less than 50% to

25% of trapping
point - 20% CCF
less than 50% of

trapping point 100% CCF
Committed
100% CCF
less than 25% of

trapping point 40%
Non-retail
credit lines
90% CCF
90% CCF
35.All other securitized revolving

exposures with controlled and noncontrolled early amortization features will
be subject to CCFs of ninety percent (90%)
and 100%, respectively, against the offbalance sheet exposures.
36. The CCF will be applied to the
amount of the investors interest. The
resultant credit equivalent amount shall
then be applied a risk weight applicable
to the underlying exposure type, as if the
exposures had not been securitized.
100% CCF
100%CCF
37. For a bank subject to the early

amortization treatment, the total capital
charge for all of its positions will be subject
to a maximum capital requirement (i.e., a cap)
equal to the greater of (i) that required for
retained securitization exposures, or (ii) the
capital requirement that would apply had the
exposures not been securitized. In addition,
banks must deduct the entire amount of any
gain-on-sale and credit enhancing IOs arising
from the securitization transaction in
accordance with paragraphs 23 and 25.
APP. 63b
08.12.31
G. Credit risk mitigation

38. The treatment below applies to a
bank that has obtained or given a credit
risk mitigant on a securitization exposure.
Credit risk mitigants include collateral,
guarantees, and credit derivatives.
Collateral in this context refers to that used
to hedge the credit risk of a securitization
exposure rather than the underlying
exposures of the securitization transaction.
Collateral
39. Eligible collateral is limited to that
recognized in paragraph 34, Part III.B.
Collateral pledged by SPEs may be
recognized.
Guarantees and credit derivatives
40. Credit protection provided by the
entities listed in paragraph 47, Part III.B may
be recognized. SPEs cannot be recognized
as eligible guarantors.
41. Where guarantees or credit
derivatives fulfill the minimum operational
requirements as specified in Part III.B and
Part IV, respectively, banks can take account
of such credit protection in calculating capital
requirements for securitization exposures.
42. Capital requirements for the
collateralized or guaranteed/protected
portion will be calculated according to Part
III.B and Part IV.
43. A bank other than the originator
providing credit protection to a securitization
exposure must calculate a capital requirement
on the covered exposure as if it were an
investor in that securitization. A bank
providing protection to an unrated credit
enhancement must treat the credit
protection provided as if it were directly
holding the unrated credit enhancement.
Maturity mismatches
44. For the purpose of setting
regulatory capital against a maturity
mismatch, the capital requirement will be
determined in accordance with paragraphs
50 to 54, Part III.B, except for synthetic
securitizations which will be determined

in accordance with paragraph 16.
Part VI. Market risk-weighted assets
The risks addressed in these guidelines are:
a) The risks pertaining to interest raterelated instruments and equities in the
trading book; and
b) Foreign exchange risk throughout
the bank.
A. Definition of the trading book
2. A trading book consists of positions
in financial instruments held either with
trading intent or in order to hedge other
elements of the trading book. To be eligible
for trading book capital treatment, financial
instruments must either be free of any
restrictive covenants on their tradability or
able to be hedged completely. In addition,
positions should be frequently and
accurately valued, and the portfolio should
be actively managed.
3. A financial instrument is any
contract that gives rise to both a financial
asset of one entity and a financial liability
or equity instrument of another entity.
Financial instruments include both primary
financial instruments (or cash instruments)
and derivative financial instruments. A
financial asset is any asset that is cash, the
right to receive cash or another financial
asset; or the contractual right to exchange
financial assets on potentially favorable
terms, or an equity instrument. A financial
liability is the contractual obligation to
deliver cash or another financial asset or
to exchange financial liabilities under
conditions that are potentially unfavorable.
4. Positions held with trading intent
are those held intentionally for short-term
resale and/or with the intent of benefiting
from actual or expected short-term price
movements or to lock in arbitrage profits,
APP. 63b
08.12.31
and may include for example proprietary

positions, positions arising from client
servicing (e.g. matched principal brokering)
and market making.
5. The following will be the basic
requirements for positions eligible to receive
trading book capital treatment:
a) Clearly documented trading
strategy for the position/instrument or
portfolios, approved by senior
management (which would include
expected holding horizon);
b) Clearly defined policies and
procedures for the active management of the
position, which must include:
i. positions are managed on a trading
desk;
ii. position limits are set and monitored
for appropriateness;
iii. dealers have the autonomy to enter
into/manage the position within agreed
limits and according to the agreed strategy;
iv. positions are marked to market at
least daily, and when marking to model the
parameters must be assessed on a daily basis;
v. positions are reported to senior
management as an integral part of the
institutions risk management process; and
vi. positions are actively monitored
with reference to market information
sources (assessment should be made of the
market liquidity or the ability to hedge
Credit ratings of debt
securities/derivatives
1
issued by sovereigns

issued by MDBs
positions or the portfolio risk profiles). This

would include assessing the quality and
availability of market inputs to the valuation
process, level of market turnover, sizes of
positions traded in the market, etc.
c) Clearly defined policy and
procedures to monitor the positions against
the banks trading strategy including the
monitoring of turnover and stale positions
in the banks trading book.
6. The documentations of the basic
requirements of paragraph 5 should be
7. In addition to the above
documentation requirements, the bank
should also submit to the BSP a
documentation of its systems and controls
for the prudent valuation of positions in the
trading book including the valuation
methodologies.
B. Measurement of capital charge
8. The market risk capital charge shall
be computed according to the
methodology set under Subsec. 1116.5,
subject to certain modifications as outlined
in the succeeding paragraphs.
9. The specific risk weights for trading
book positions in debt securities and debt
derivatives shall depend on the third party
credit assessment of the issue or the type of
issuer, as may be appropriate, as follows:
issued by other entities
Unadjusted
specific
risk weight
Php-denominated debt securities/derivatives issued by the Philippine NG and BSP

0.00%
LGU Bonds covered by Deed of Assignment of Internal Revenue Allotment and guaranteed
by LGU Guarantee Corporation
4.00%
AAA to AAAAA
A+ to BBBAA+ to BBBResidual maturity <
Residual maturity <
6 months
6 months
Residual maturity >
Residual maturity >
6 months, < 24 months 6 months, < 24 months
Residual maturity >
Residual maturity >
24 months
24 months
0.00%
AAA to BBBResidual maturity <
6 months
Residual maturity >
6 months, < 24 months
Residual maturity >
24 months
All other debt securities/
derivatives
0.25%
1.00%
1.60%
8.00%
The notations follow the rating symbols used by Standard & Poors. The mapping of ratings of all recognized external
rating agencies is in Part III.C. For purposes of this framework, debt securities/derivatives issued by sovereigns include
foreign currency denominated debt securities/derivatives issued by the Philippine NG.
APP. 63b
08.12.31
10. Foreign currency denominated

debt securities/derivatives issued by the
1
Philippine NG and BSP shall be
risk-weighted according to the table above:
Provided, That only one-third (1/3) of the
applicable risk weight shall be applied
from 01 July 2007, two-thirds (2/3) from
01 January 2008, and the full risk weight
from 01 January 2009.
11. A security, which is the subject of
a repo-style transaction, shall be treated as
if it were still owned by the seller/lender
of the security, i.e., to be reported by the
seller/lender.
12. In addition to capital charge for
specific and general market risk, a credit
risk capital charge should be applied to
banks counterparty exposures in repo-style
transactions and OTC derivatives contracts.
The computation of the credit risk capital
charge for counterparty exposures arising
from trading book positions are discussed in
paragraphs 35 to 41 of Part III.B.
C. Measurement of risk-weighted assets

13. Market risk-weighted assets are
determined by multiplying the market risk
capital charge by ten (10) [i.e., the
reciprocal of the minimum capital ratio of
ten percent (10%)].
Part VII. Operational risk-weighted
assets
A. Definition of operational risk
1. Operational risk is defined as the
risk of loss resulting from inadequate or
failed internal processes, people and
systems or from external events. This
definition includes legal risk, but excludes
strategic and reputational risk.
2. Banks should be guided by the
Basel Committee on Banking Supervisions
recommendations on Sound Practices for
the Management and Supervision of

Operational Risk (February 2003). The
same may be downloaded from the BIS
website (www.bis.org).
B. Measurement of capital charge
3. In computing for the operational
risk capital charge, banks may use either the
basic indicator approach or the standardized
approach.
4. Under the basic indicator approach,
banks must hold capital for operational risk
equal to fifteen percent (15%) of the average
gross income over the previous three (3)
years of positive annual gross income.
Figures for any year in which annual gross
income is negative or zero should be
excluded from both the numerator and
denominator when calculating the average.
5. Banks that have the capability to
map their income accounts into the
various business lines given in paragraph
7 may use the standardized approach
subject to prior BSP approval2. In order to
qualify for use of the standardized
approach, a bank must satisfy BSP that,
at a minimum:
a) Its board of directors and senior
management are actively involved in the
oversight of the operational risk
management framework;
b) It has an operational risk
management system that is conceptually
sound and is implemented with integrity; and
c) It has sufficient resources in the use
of the approach in the major business lines
as well as the control and audit areas.
6. Operational risk capital charge is
calculated as the three (3)-year average of
the simple summation of the regulatory
capital charges across each of the business
lines in each year. In any given year,
negative capital charges (resulting from
negative gross income) in any business line
may offset positive capital charges in other
Warrants paired with ROP Global Bonds shall be exempted from capital charge for market risk only to the extent of banks
holdings of bonds paired with warrants equivalent to not more than fifty percent (50%) of total qualifying capital, as defined
under Part II of this Appendix.
2
Refer to Appendix 63b-2 for the Guidelines on the Use of the Standardized Approach in Computing the Capital Charge
for Operational Risk
1
APP. 63b
08.12.31
business lines without limit. However,

where the aggregate capital charge across
all business lines within a given year is
negative, then figures for that year shall
Business lines
Level 1
Level 2
Corporate Finance
Corporate finance Municipal/Government Finance
Advisory Services
Sales
Market Making
Trading and Sales Proprietary
Positions
Treasury
Retail Banking
be excluded from both the numerator and

denominator.
7. The business lines and their
corresponding beta factors are listed below:
Activity Groups
Beta factors
Mergers and acquisitions, underwriting,

privatization, securitization, research, debt
(government, high yield), equity, syndications, IPO,
secondary private placements
Fixed income, equity, foreign exchanges,
commodities, credit, funding, own position securities,
lending and repos, brokerage, debt, prime brokerage
Retail lending and deposits, banking services, trust

and estates
Private Banking
Private lending and deposits, banking services,
Retail Banking
trust and estates, investment advice
Card Services
Merchant/commercial/corporate cards, private
labels and retail
Commercial
Commercial
Project finance, real estate, export finance, trade
Banking
Banking
finance, factoring, leasing, lending, guarantees,
bills of exchange
Payment and
External Clients
Payments and collections, funds transfer, clearing
Settlement
and settlement
Custody
Escrow, depository receipts, securities lending
(customers) corporate actions
Agency Services
Corporate Agency Issuer and paying agents
Corporate Trust
Discretionary Fund Discretionary and non-discretionary fund
management, whether pooled, segregated, retail,
Asset Management Management
Non-Discretionary institutional, closed, open, private equity
Fund Management
Retail Brokerage Retail brokerage
Execution and full service
8. Gross income, for the purpose of

computing for operational risk capital
charge, is defined as net interest income plus
non-interest income. This measure should:
a) be gross of any provisions for losses
on accrued interest income from financial
assets;
b) be gross of operating expenses,
including fees paid to outsourcing service
providers;
c) include fees and commissions;
d) exclude gains/(losses) from the
sale/redemption/derecognition of nontrading financial assets and liabilities;
e) exclude gains/(losses) from sale/
derecognition of non-financial assets; and
18%
18%
12%
15%
18%
15%
12%
12%
f) include other income (i.e., rental

income, miscellaneous income, etc.)
(As amended by M-2007-019 dated 21 June 2007)
C. Measurement of risk-weighted assets

9. The resultant operational risk capital
charge is to be multiplied by 125% before
multiplying by ten (10) [i.e., the reciprocal of
the minimum capital ratio of ten percent (10%)].
Part VIII. Disclosures in the Annual
Reports and Published Statement of
Condition
1. This section lists the specific
information that banks have to disclose, at
APP. 63b
08.12.31
a minimum, in their Annual Reports,

except Item "h", paragraph 4 which should
also be disclosed in banks quarterly
Published Statement of Condition. These
enhanced disclosures shall commence
with Annual Reports for financial year 2007
and quarterly published statement of
condition from end-September 2007.
2. Full compliance of these disclosure
requirements is a prerequisite before banks
can obtain any capital relief (i.e., adjustments
in the risk weights of collateralized or
guaranteed exposures) in respect of any
credit risk mitigation techniques.
A. Capital structure and capital adequacy
3. The following information with
regard to banks capital structure and capital
adequacy shall be disclosed in banks
Annual Reports, except Item "h" below
which should also be disclosed in banks
quarterly published statement of condition:
a) Tier 1 capital and a breakdown of
its components (including deductions solely
from Tier 1);
b) Tier 2 capital and a breakdown of
its components;
c) Deductions from Tier 1 fifty percent
(50%) and Tier 2 fifty percent (50%) capital;
d) Total qualifying capital;
e) Capital requirements for credit risk
(including securitization exposures);
f) Capital requirements for market risk;
g) Capital
requirements
for
operational risk; and
h) Total and Tier 1 CAR on both solo
and consolidated bases.
B. Risk exposures and assessments
4. For each separate risk area (credit,
market, operational, interest rate risk in the
banking book), banks must describe their
risk management objectives and policies,
including:
a) Strategies and processes;
b) The structure and organization of
the relevant risk management function;
c) The scope and nature of risk

reporting and/or measurement systems;
and
d) Policies for hedging and/or
mitigating risk, and strategies and processes
for monitoring the continuing effectiveness
of hedges/mitigants.
Credit risk
5. Aside from the general disclosure
requirements stated in paragraph 4, the
following information with regard to credit
risk have to be disclosed in banks Annual
Reports:
a) Total credit risk exposures (i.e.,
principal amount for on-balance sheet and
credit equivalent amount for off-balance
sheet, net of specific provision) broken down
by type of exposures as defined in Part III;
b) Total credit risk exposure after risk
mitigation, broken down by:
i. type of exposures as defined in Part
III; and
ii. risk buckets, as well as those that
are deducted from capital;
c) Total credit risk-weighted assets
broken down by type of exposures as
defined in Part III;
d) Names of external credit assessment
institutions used, and the types of exposures
for which they were used;
e) Types of eligible credit risk mitigants
used including credit derivatives;
f) For banks with exposures to
securitization structures, aside from the
general disclosure requirements stated in
paragraph 4, the following minimum
information have to be disclosed:
i. Accounting policies for these
activities;
ii. Total outstanding exposures
securitized by the bank; and
iii. Total amount of securitization
exposures retained or purchased broken
down by exposure type;
g) For banks that provide credit
protection through credit derivatives, aside
APP. 63b
08.12.31
from
the
general
disclosure
requirements stated in paragraph 4,
total outstanding amount of credit
protection given by the bank broken
down by type of reference exposures
should also be disclosed; and
h) For banks with investments in
other types of structured products, aside
from the general disclosure requirements
stated in paragraph 4, total outstanding
amount of other types of structured
products issued or purchased by the bank
broken down by type should also be
disclosed.
Market risk
following information with regard to market
risk have to be disclosed in banks Annual
Reports:
a) Total market risk-weighted assets
broken down by type of exposures (interest
rate, equity, foreign exchange, and options);
and
b) For banks using the internal models
approach, the following information have
to be disclosed:
i. The characteristics of the models
used;
ii. A description of stress testing
applied to the portfolio;
iii. A description of the approach used
for backtesting/validating the accuracy and
consistency of the internal models and
modeling processes;
iv. The scope of acceptance by the
BSP; and
v. A comparison of VaR estimates
with actual gains/losses experienced by
the bank, with analysis of important outliers
in backtest results.
Operational risk
requirements stated in paragraph 4, banks
have to disclose their operational riskweighted assets in their Annual Reports.

Interest rate risk in the banking book
following information with regard to
interest rate risk in the banking book
have to be disclosed in banks Annual
Reports:
a) Internal measurement of interest
rate risk in the banking book, including
assumptions
regarding
loan
prepayments and behavior of nonmaturity deposits, and frequency of
measurement; and
b) The increase (decline) in earnings
or economic value (or relevant measure
used by management) for upward and
downward rate shocks according to
internal measurement of interest rate risk
in the banking book.
Part IX. Enforcement
A. Sanctions for non-reporting of CAR
breaches
1. It is the responsibility of the bank
CEO to cause the immediate reporting
of CAR breaches both to its Board and to
the BSP. It is likewise the CEOs
responsibility to ensure the accuracy of
CAR calculations and the integrity of the
associated monitoring and reporting
system. Any willful violation of the above
will be considered as a serious offense
for purposes of determining the
appropriate monetary penalty that will be
imposed on the CEO. In addition, the
CEO shall be subject to the following
non-monetary sanctions:
a) First offense warning;
b) Second offense reprimand;
c) Third offense 1 month
suspension without pay; and
d) Further offense disqualification.
APP. 63b
08.12.31
B. Sanctions for non-compliance with

required disclosures
2. Willful
non-disclosure
or
erroneous disclosure of any item required
to be disclosed under this framework in
either the Annual Report or the Published
Statement of Condition shall be considered
as a serious offense for purposes of
determining the appropriate monetary
penalty that will be imposed on the bank.
In addition, the CEO and the Board shall
be subject to the following non-monetary
sanctions:
a) First offense warning on CEO and

the Board;
b) Second offense reprimand on CEO
and the Board;
c) Third offense 1 month suspension
of CEO without pay; and
d) Further offense possible
disqualification of the CEO and/or the Board.
(Circular No. 538 dated 04 August 2006, as amended by
M-2008-015 dated 25 March 2008, Circular Nos. 605 dated 05
March 2008, 588 dated 11 December 2007, M-2007-019 dated
21 June 2007, Circular No. 560 dated 31 January 2007 and
M-2006-022 dated 24 November 2006)
APP. 63b-1
07.12.31
GUIDELINES ON THE CAPITAL TREATMENT OF BANKS HOLDINGS

OF ROP GLOBAL BONDS PAIRED WITH WARRANTS
A banks holdings of ROP Global
Bonds that are paired with Warrants (paired
Bonds), which give the bank the option or
right to exchange its holdings of ROP
Global Bonds into Peso-denominated
government securities upon occurrence of
a predetermined credit event, shall be risk
weighted at zero percent (0%): Provided,

That the zero percent (0%) risk weight shall
be applied only to banks holdings of paired
Bonds equivalent to not more than fifty
percent (50%) of the total qualifying capital,
as defined under Appendix 63-b.
(Circular 588 dated 11 December 2007)
Appendix 63b-1 - Page 1
APP. 63b-2
07.12.31
GUIDELINES ON THE USE OF THE STANDARDIZED APPROACH IN

COMPUTING THE CAPITAL CHARGE FOR OPERATIONAL RISKS
Banks applying for the use of the
Standardized Approach (TSA) must satisfy
the following requirements/criteria:
General Criteria
1. The use of TSA shall be
conditional upon the explicit prior
2. The BSP will only give approval to
an applicant bank if at a minimum:
a. Its board of directors (or equivalent
foreign bank branches) and senior
management are actively involved in the
oversight of the operational risk
management framework;
b. It has an operational risk
management system that is conceptually
sound and is implemented with integrity;
and,
c. It has sufficient resources in the use
of the approach in the major business
lines as well as in the control and audit
areas.
3. The above criteria should be
supported by a written documentation of
the board-approved operational risk
management framework of the bank which
should cover the following:
a. Overall objectives and policies
b. Strategies and processes
c. Operational risk management
structure and organization
d. Scope and nature of risk reporting/
assessment systems
e. Policies and procedure for
mitigating operational risk
4. This operational risk management
framework of the bank should be disclosed
in its annual report, as provided under
Appendix 63b.
Mapping of Gross Income

5. Banks using TSA in computing
operational risk capital charge must
develop specific written policies and
criteria for mapping gross income of their
current business lines into the standard
business lines prescribed under Appendix
63b. They must also put in place a review
process to adjust these policies and criteria
for new or changing business activities or
products as appropriate.
6. Banks must adopt the following
principles for mapping their business
activities to the appropriate business lines:
(a) Activities or products must be
mapped into only one (1) of the eight (8)
standard business lines, as follows:
(1) Corporate finance- This includes
banking arrangements and facilities [e.g.,
mergers and acquisitions, underwriting,
privatizations, securitization, research, debt
(government, high yield), equity,
syndications, Initial Public Offering (IPO),
secondary private placements] provided to
large commercial enterprises, multinational
companies,
NBFIs,
government
departments, etc.
(2) Trading and sales- This includes
treasury operations, buying and selling of
securities, currencies and others for
proprietary and client account.
(3) Retail banking- This includes
financing arrangements for private
individuals, retail clients and small
businesses such as personal loans, credit
cards, auto loans, etc. as well as other
facilities such as trust and estates and
investment advice.
(4) Commercial banking- This
includes financing arrangements for
commercial enterprises,including project
APP. 63b-2
07.12.31
finance, real estate, export finance, trade

finance, factoring, leasing, guarantees, bills
of exchange, etc.
(5) Payment and settlement- This
includes activities relating to payments and
collections, inter-bank funds transfer,
clearing and settlement.
(6) Agency services- This refers to
activities of the banks acting as issuing and
paying agents for corporate clients,
providing custodial services, etc.
(7) Asset management- This includes
managing funds of clients on a pooled,
segregated, retail, institutional, open or
closed basis under a mandate.
(8) Retail brokerage- This includes
brokering services provided to customers
that are retail investors rather than
institutional investors.
(a) Any activity or product which
cannot be readily mapped into one (1) of
the standardized business lines but which
is ancillary1 to a business line shall be
allocated to the business line to which it is
ancillary. If the activity is ancillary to two
(2) or more business lines, an objective
criteria or qualification must be made to
allocate the annual gross income derived
from that activity to the relevant business
lines.
(b) Any activity that cannot be mapped
into a particular business line and is not an
ancillary activity to a business line shall be
mapped into one (1) of the business lines
with the highest associated beta factor
eighteen percent (18%). Any ancillary
activity to that activity will follow the same
business line treatment.
(c) Banks may use internal pricing
methods to allocate gross income
between business lines: Provided, That the
sum of gross income for the eight (8)
business lines must still be equal to the gross
income as would be recorded if the bank uses
the Basic Indicator Approach (BIA).
(d) The process by which banks map
their business activities into the

standardized business lines must be
regularly reviewed by party independent
from that process.
7. In computing the gross income of
the bank, the amounts of the income
accounts reported in the operational risk
template2 must be equal to the year-end
balance reported in the FRP. Any
discrepancy must be properly accounted
and supported by a reconciliation statement
Application Process for the Use of TSA
8. Banks applying for the use of TSA
should submit the following documents to
their respective Central Points of Contact
(CPCs) of the BSP:
(a) An application letter signed by the
president/CEO (or equivalent management
committee in the case of foreign bank
branches) of the bank signifying its intention
to use TSA in computing the capital charge
for operational risk;
(b) Written documentation of the Boardapproved operational risk management
framework as described in paragraph 3.
(c) Written policies and criteria for
mapping business activities and their
corresponding gross income into the
standard business lines as described in
paragraphs 5 to 7.
(d) An overall roll-out plan of the bank
including project plans and execution
processes, with the appropriate time lines.
Initial Monitoring Period
9. The BSP may require a six (6)-month
period of initial monitoring of a banks TSA
before it is used for supervisory capital
purposes.
Reversion from TSA to BIA
10. A bank which has been approved
to use TSA in computing its capital charge
1 Ancillary function is an activity/function that is not the main activity of a given business line but only as a
support activity
2 Part V of the revised CAR report template
APP. 63b-2
07.12.31
for operational risk will not be allowed to

revert to the simpler approach, i.e., the BIA.
However, if the BSP determines that the
bank no longer meets the qualifying criteria
for TSA, it may require the bank to revert to
BIA. The bank shall be required to repeat
the whole application process should it opt

to return to the use of TSA, but only after a
year of using the BIA.
These guidelines shall take effect on 21
July 2007.
(M-2007-019 dated 21 June 2007)
APP. 64
05.12.31
BSP RULES OF PROCEDURE ON ADMINISTRATIVE CASES INVOLVING

DIRECTORS AND OFFICERS OF BANKS
RULE I GENERAL PROVISIONS
Section 1. Title. These rules shall be
known as the BSP Rules of Procedure on
Administrative Cases Involving Directors
and Officers of Banks.
Sec. 2. Applicability. These rules shall
apply to administrative cases filed with or
referred to the Office of Special
Investigation (OSI), BSP, involving directors
and officers of banks pursuant to Section
37 of Republic Act No. 7653 (The New
Central Bank Act) and Sections 16 and 66
of Republic Act No. 8791 (The General
Banking Law of 2000).
The disqualification of directors and
officers under Section 16 of R.A. No. 8791
shall continue to be covered by existing
BSP rules and regulations.
Sec. 3. Nature of proceedings. The
proceedings under these rules shall be
summary in nature and shall be conducted
without necessarily adhering to the
technical rules of procedure and evidence
applicable to judicial trials. Proceedings
under these rules shall be confidential and
shall not be subject to disclosure to third
parties, except as may be provided under
existing laws.
RULE II COMPLAINT
Sec. 1. Complaint. The complaint shall
be in writing and subscribed and sworn to
by the complainant. However, in cases
initiated by the appropriate department of
the BSP, the complaint need not be under
oath. No anonymous complaint shall be
entertained.
Sec. 2. Where to file. The complaint shall

be filed with or referred to the OSI.
Sec. 3. Contents of the complaint. The
complaint shall contain the ultimate facts
of the case and shall include:
a. full name and address of the
complaint;
b. full name and address of the
person complained of;
c. specification of the charges;
d. statement of the material facts;
e. statement as to whether or not a
similar complaint has been filed with the
BSP or any other public office.
The complaint shall include copies of
documents and affidavits of witnesses, if
any, in support of the complaint.
RULE III DETERMINATION OF
PRIMA FACIE CASE
AND PROSECUTION OF THE CASE
Sec. 1. Action on complaint. Upon
determination that the complaint is
sufficient in form and substance, the OSI
shall furnish the respondent with a copy
thereof and require respondent to file
within ten (10) days from receipt thereof,
a sworn answer, together with copies of
documents and affidavits of witnesses, if
any, copy furnished the complainant.
Failure of the respondent to file an
answer within the prescribed period shall
be considered a waiver and the case shall
be deemed submitted for resolution.
Sec. 2. Preliminary investigation. Upon
receipt of the sworn answer of the
respondent, the OSI shall determine
whether there is a prima facie case against
APP. 64
05.12.31
the respondent. If a prima facie is

established during the preliminary
investigation, the OSI shall file the formal
charge with the Supervised Banks
Complaints Evaluation Group (SBCEG),
BSP. However, in the absence of a prima
facie case, the OSI shall dismiss the
complaint without prejudice or take
appropriate action as may be warranted.
Sec. 3. Formal charge. The formal charge
shall contain the name of the respondent, a
brief statement of material or relevant facts,
the specific charge, and the pertinent
provisions of banking laws, rules or
regulations violated.
Sec. 4. Prosecution. The OSI shall
prosecute the case. The complainant may
be assisted or represented by counsel, who
may be deputized for such purpose, under
the direction and control of the OSI.
RULE IV PROCEEDING BEFORE
THE HEARING PANEL OR HEARING
OFFICER
Sec. 1. Filing of the formal charge. The
OSI shall file the formal charge before the
SBCEG. It shall also furnish the SBCEG with
supporting documents relevant to the formal
charge.
Sec. 2. Hearing officer and composition
of the hearing panel. The case shall be
heard either by a hearing officer or a hearing
panel, which shall be composed of a
chairman and two (2) members, all of whom
shall be designated by the SBCEG. The
SBCEG shall determine whether the case
shall be heard either by a hearing panel or
a hearing officer.
Sec. 3. Answer. The hearing panel or
hearing officer shall furnish the respondent
with a copy of the formal charge, with
supporting documents relevant thereto,

and shall require him to submit, within ten
(10) days from receipt thereof, a sworn
answer, copy of which shall be furnished
the prosecution.
The respondent, in his answer, shall
specifically admit or deny all the charges
specified in the formal charge, including
the attachments. Failure of the respondent
to comment, under oath, on the
documents attached thereto shall be
deemed an admission of the genuineness
and due execution of said documents.
Sec. 4. Waiver. In the event that the
respondent, despite due notice, fails to
submit an answer within the prescribed
period, he shall be deemed to have waived
his right to present evidence. The hearing
panel or hearing officer shall issue an order
to that effect and direct the prosecution to
present evidence ex parte. Thereafter, the
hearing panel or hearing officer shall
submit a report on the basis of available
evidence.
Sec. 5. Preliminary conference. Upon
receipt of the answer of respondent, the
hearing panel or hearing officer shall set
the case for preliminary conference for the
parties to consider and agree on the
admission or stipulation of facts and of
documents, simplification of issues,
identification and marking of evidence and
such other matters as may aid in the
prompt and just resolution of the case. Any
evidence not presented and identified
during the preliminary conference shall not
be admitted in subsequent proceedings.
Sec. 6. Submission of position papers
After the preliminary conference, the
hearing panel or hearing officer shall issue
an order stating therein the matters taken
up, admissions made by the parties and
issues for resolution. The order shall also
APP. 64
05.12.31
direct the parties to simultaneously submit,

within ten (10) days from the receipt of
said order, their respective position papers
which shall be limited to a discussion of
the issues as defined in the order.
Sec. 7. Hearing. After the submission by
the parties of their position papers, the
hearing panel or hearing officer shall
determine whether or not there is a need
for a hearing for the purpose of crossexamination of the affiant(s). If the hearing
panel or hearing officer finds no necessity
for conducting a hearing, he shall issue an
order to the effect.
In cases where the Hearing Panel or
Hearing Officer deems it necessary to
allow the parties to conduct crossexamination, the case shall be set for
hearing. The affidavits of the parties and
their witnesses shall take the place of their
direct testimony.
RULE V PROHIBITED MOTIONS
Sec. 1. Prohibited Motions. No motion
to dismiss or quash, motion for bill of
particulars and such other dilatory motions
shall be allowed in the cases covered by
these rules.
RULE VI RESOLUTION OF THE CASE
Sec. 1. Contents and period for
submission of report. Within sixty (60)
days after the hearing panel or hearing
officer has issued an order declaring that
the case is submitted for resolution, a
report shall be submitted to the Monetary
Board. The report of the hearing panel or
hearing officer shall contain clearly and
distinctly the findings of facts and
conclusions of law on which it is based.
Sec. 2. Rendition and notice of resolution
After consideration of the report, the
Monetary Board shall act thereon and
cause true copies of its resolution to be

served upon the parties.
Sec. 3. Finality of the resolution. The
resolution of the Monetary Board shall
become final after the expiration of fifteen
(15) days from receipt thereof by the parties,
unless a motion for reconsideration shall
have been timely filed.
Sec. 4. Motion for reconsideration. A
motion for reconsideration may only be
entertained if filed within fifteen (15) days
from receipt of the resolution by the parties.
No second motion for reconsideration shall
be allowed.
RULE VII APPEAL
Sec. 1. Appeal. An appeal from the
Resolution of the Monetary Board may be
taken to the Court of Appeals within the
period and in the manner provided under
Rule 43 of the Revised Rules of Court.
RULE VIII EXECUTION OF
RESOLUTION
Sec. 1. Resolution becoming executory
The resolution of the Monetary Board shall
become executory upon the lapse of fifteen
(15) days from receipt thereof by the parties
or from the receipt of the denial of the
motion for reconsideration.
Sec. 2. Effect of appeal. The appeal shall
not stay the resolution sought to be
reviewed unless the Court of Appeals shall
direct otherwise upon such terms as it may
deem just.
Sec. 3. Enforcement of resolution. When
the resolution orders the imposition of
fines, suspension or removal from office of
respondent, the enforcement thereof shall
be referred to the appropriate department
of the BSP.
APP. 64
05.12.31
RULE IX - MISCELLANEOUS
PROVISIONS
Sec. 1. Repeal. All existing rules, regulations,
orders or circulars or any part thereof
inconsistent with these rules are hereby
repealed, amended or modified accordingly.
Sec. 2. Separability Clause. If any part of

these rules is declared unconstitutional or
illegal, the other parts or provisions shall
remain valid.
APP. 65
05.12.31
FORMAT CERTIFICATION
______________________________
Name of Bank
CERTIFICATION
Pursuant to the requirements of Subsec. X235.12, I hereby certify that on all banking
days of the semester ended _____ that the ____________________ (bank) did not enter into
any repurchase agreement covering government securities, commercial papers and other
negotiable and non-negotiable securities or instruments that are not documented in
accordance with existing BSP regulations and that it has strictly complied with the pertinent
rules of the SEC and the BSP on the proper sale of securities to the public and performed the
necessary representations and disclosures on the securities particularly the following:
1. Informed and explained to the client all the basic features of the security being sold
on a without recourse basis, such as, but not limited to:
a.
b.
c.
d.
e.
f.
Issuer and its financial condition;

Term and maturity date;
Applicable interest rate and its computation;
Tax features (whether taxable, tax paid or tax-exempt);
Risk factors and investment considerations;
Liquidity feature of the instrument:
(1) Procedures for selling the security in the secondary market (e.g., OTC or
exchange);
(2) Authorized selling agents; and
(3) Minimum selling lots.
g. Disposition of the security
(1) Registry (address and contact numbers)
(2) Functions of the registry
(3) Pertinent registry rules and procedures
h. Collecting and Paying Agent of the principal and interest
i. Other pertinent terms and conditions of the security and if possible, a copy of
the prospectus or information sheet of the security.
2. Informed the client that pursuant to BSP Circular No. 392 dated 23 July 2003
a. Securities sold under repurchase agreements shall be physically delivered, if
certificated, to a BSP accredited custodian that is mutually acceptable to the
client and the bank, or by means of book-entry transfer to the appropriate securities
account of the BSP accredited custodian in a registry for said securities, if
immobilized or dematerialized, and
b. Securities sold on a without recourse basis are required to be delivered physically
to the purchaser, or to his designated custodian duly accredited by the BSP, if
APP. 65
05.12.31
certificated, or by means of book-entry transfer to the appropriate securities

account of the purchaser or his designated custodian in a registry for said securities
if immobilized or dematerialized
3. Clearly stated to the client that:
a. The bank does not guarantee the payment of the security sold on a without
recourse basis and in the event of default by the issuer, the sole credit risk shall
be borne by the client; and
b. The bank is not performing any advisory or fiduciary function.
_________________
Name of Officer
Position
Date _____________
SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiant exhibiting
his Community Tax Certificate as indicated below:
Name
Community Tax
Cert. No.
Date/Place
Issued
Notary Public
APP. 65
05.12.31
Annex A
FORMAT CERTIFICATION
______________________________
Name of Bank
CERTIFICATION
Pursuant to the requirements of Subsec. X235.12_______ dated _____, I hereby
certify that as of 31 January 2005, the ____________________ (name of bank) does not have
any outstanding repurchase agreements covering government securities, commercial papers
and other negotiable and non-negotiable securities or instruments that are not documented
in accordance with existing BSP regulations.
____________________
Name of Officer
Position
SUBSCRIBED AND SWORN to before me, this _____ day of _____, affiant exhibiting
his Community Tax Certificate as indicated below:
Name
Community Tax
Cert. No.
Date/Place
Issued
Notary Public
APP. 66
05.12.31
REGULATORY REQUIREMENTS IN INVESTING IN CREDIT-LINKED NOTES,

STRUCTURED PRODUCTS AND SECURITIES OVERLYING SECURITIZATION
STRUCTURES BY UBs AND KBs
(Appendix to Secs. 1633, 1635, 1636 and 1648)
a. Banks shall: submit the following
documents to the appropriate supervising
within five (5) banking days after the date
of its initial investment in credit-linked
notes, structured products and/or securities
overlying securitization structures (1) A notarized certification in the
prescribed formats (Annexes A and B)
duly signed by the President/Chief
Executive Officer or its equivalent, the
Treasurer and Compliance Officer, stating
that the banks investments are in
compliance with relevant BSP rules and
regulations, and that the bank has an
adequate risk management system in
place; and
(2) Terms and conditions and/or
product manuals on the credit- linked
notes, structured products and/or
securities overlying securitization
structures, which as a minimum should
cover the following:
(a) Description of the relevant
financial product;
(b) Analysis of the proposed
investments
i. reasonableness vis--vis the
institutions overall financial condition and
capital levels; and
ii. consistency with the institutions
business strategies and objectives;
(c) Analysis of the risks that may arise
from the investments and the
corresponding impact on the banks risk
profile;
(d) Procedures/methodologies that
the bank will implement to measure,
monitor and control the risks inherent in
the financial products;
(e) Relevant accounting guidelines,

including pro-forma accounting entries;
(f) Relevant tax treatment;
(g) Analysis of any legal/regulatory
restrictions and whether the investment is
permissible for the institution; and
(h) Process flow chart, from deal
initiation to risk reporting, indicating the
departments and personnel involved in the
identified processes.
UBs/KBs failing to submit the required
certification within the prescribed deadline
shall be subject to monetary penalties
applicable for delayed reporting under
existing regulations. For purposes of
imposing monetary penalties, the required
certification shall be classified as a Category
A-1 report. Further, failure to comply with
the above requirements shall subject the
erring bank to the imposition of
administrative sanctions under Section 37
of R.A. 7653.
The certification and the terms and
conditions and/or product manual need not
be submitted for a banks subsequent
investments in the same issue of creditlinked note or structured product, or
securities overlying the same tranche of a
securitization structure.
b. The certification shall be subject to
post-verification by the appropriate
supervision and examination department
of the BSP.
Should the BSP subsequently determine
that the investments do not fully comply with
the provisions of Secs. 1633, 1635, 1636 and
1648, as applicable, and other relevant BSP
regulations, the UB/KB shall be considered
to have submitted a false certification, subject
to the sanctions prescribed under
APP. 66
05.12.31
(1) Sec. 1636 for investments in

structured products by UBs and KBs
without expanded derivatives authority,
or
(2) Section 37 of R.A. No. 7653 for
investments in structured products by UBs
and KBs with expanded derivatives
authority, and for investments in credit-
linked notes and similar products and in

securities overlying securitization
structures by all UBs and KBs.
Monetary penalties shall be reckoned
from the date of the investment until the
date that the erring bank shall have fully
complied with the requirements under
Secs. 1633, 1635, 1636 and 1648.
APP. 66
05.12.31
Annex A
For investments in (1) structured products by UBs and KBs with expanded derivatives authority and (2) credit-linked notes
and securities overlying securitization structures by all UBs and KBs
(Name of Bank)
CERTIFICATION
in
We certify, in relation to
(name of financial product)
(Name of Bank)
on
(date),
s investment
that
1.
The bank is allowed to invest in the product cited above under existing rules and
regulations of the Bangko Sentral ng Pilipinas and the investment was approved by the
Board of Directors in its Resolution No. _____ dated _______________; and
2.
The bank has an adequate risk management system, which includes, among others, the
following:
a.
Written policies and procedures that provide for adequate identification,

measurement, monitoring and control of all risks in the investment;
b.
Pertinent risk measurement system/methodologies that effectively measure

on a timely basis all risks inherent in the investment;
c.
Limit structure that addresses all risk factors and is consistent with the boardapproved risk appetite and business strategy;
d.
Internal controls; and
e.
Management information system that efficiently provides accurate and timely

monitoring and reporting of risk exposures and limit compliance.
President/CEO
Treasurer
Compliance Officer
SUBSCRIBED AND SWORN to before me this ________ day of __________________ at

__________________, with affiants exhibiting to me the following Community Tax Certificate Nos.
Name
President/CEO
Treasurer
Compliance Officer
Date Issued
Place Issued
NOTARY PUBLIC
Not. Reg. No.
Doc. No.
Page No.
Series of
APP. 66
05.12.31
Annex B
For investments in structured products by UBs and KBs without expanded derivatives authority
(Name of Bank)
CERTIFICATION
in
We certify, in relation to
(name of financial product)
on
(Name of Bank
(date)
s investment
, that
1.
The bank is allowed to invest in the product cited above under existing rules
and regulations of the Bangko Sentral ng Pilipinas;
2.
The banks investment is in compliance with the conditions set out in Circular
No. 466 dated 05 January 2005, as follows:
a. The revenue stream of the structured product is linked only to interest
rate indices and/or foreign exchange rates other than those that involve
the Philippine Peso, and that the minimum all-in return of such
investments is not lower than zero.
b. The contractual maturity of the instrument does not exceed 5 years.
c. The product is issued by a bank or special purpose vehicle (SPV)
collateralized by securities rated at least A or its equivalent by an
international rating agency acceptable to the Monetary Board.
d. The investment is booked in the Held to Maturity (HTM) Securities
account, or for instruments with put options, in the Available for Sale
(AFS) Securities account.
e. The total carrying value of all the banks investments in structured products
does not exceed 20% of the total investment portfolio of its EFCDU.
f.
The bank has established internal processes to identify, evaluate, monitor

and manage the risk exposures (e.g. credit risk, market risk, liquidity risk,
operational risk, legal risk, compliance risk), created by its investment in
the above-cited product. Further to this:
(i)
The investment was specifically approved by the Board of

Directors in its Resolution No. _____ dated _______________,
and is subject to appropriate internal limits and periodic reporting
to the Board.
APP. 66
05.12.31
(ii)
The bank complies with generally accepted accounting and

disclosure standards and/or rules and regulations prescribed by
the BSP.
(iii)
An independent risk management function is in place.
(iv)
The bank has the ability to value the investments on a continuing

and consistent basis and to measure its sensitivity to market
movements.
(v)
The risks of the investments can be accurately aggregated in risk

reports on a timely basis.
Further, we undertake to
(i)
Perform, at regular intervals, stress tests that reflect extreme market

conditions; and
(ii)
Obtain, on a monthly basis, bid prices from the issuer(s) of the

investment instruments, to supplement the valuation exercise in
Item 2.f.iv above.
President/CEO
Treasurer
Compliance Officer
SUBSCRIBED AND SWORN to before me this __________ day of

_____________________ at ____________________, with affiants exhibiting to me the
following Community Tax Certificate Nos.
Name
President/CEO
Treasurer
Compliance Officer
Date Issued
Place Issued
NOTARY PUBLIC
Not. Reg. No. ____________________
Doc. No.
____________________
Page No.
____________________
Series of
____________________
APP. 66a
08.12.31
GUIDELINES ON THE ACCOUNTING TREATMENT FOR INVESTMENTS IN

CREDIT-LINKED NOTES AND OTHER STRUCTURED PRODUCTS
(Appendix to Sec. 1389)
In line with the policy of promoting

fairness and accuracy in reporting financial
transactions, banks are enjoined to observe
the following guidelines on accounting for
investments in credit-linked notes (CLNs)
and other structured products (SPs) in
addition to those prescribed under PAS 39:
CLNs and other SPs are financial
instruments which consist of the host
contract (e.g., debt or equity contract) and
one or more embedded derivatives. Said
financial instruments may be accounted for
as compound financial instruments or as
bifurcated financial instruments where the
embedded derivatives shall be separated
from the host contracts. PAS 39 provides
the conditions on when the embedded
derivative may be bifurcated from the host
contract.
Booking of CLNs and other SPs as a
compound instrument
1. CLNs may be booked under the
Held for Trading (HFT) or Designated
at Fair Value through Profit or Loss
(DFVPL) category according to intention
as provided under Circular No. 494 dated
20 September 2005.
2. Other SPs, shall also be booked
under the HFT or DFVPL category according
to intention as provided in PAS 39.
In either case, the compound
instrument (host contract and embedded
derivatives) shall be carried at fair value
with fair value changes reflected in profit
or loss.
Booking of CLNs and other SPs as
bifurcated financial instrument
Investment in CLNs and other SPs that
are not intended to be traded (i.e., not to
be booked as HFT) or to be designated at

fair value through profit or loss shall be
accounted for as bifurcated financial
instruments.
Accounting for host contracts. When
the embedded derivatives are bifurcated
(separated) from the host contract, the
host contract shall be accounted for as
follows:
1. In the case of CLN, the host contract
shall be booked under the Available for
Sale (ASS) but not under the Held to
Maturity (HTM) nor under the Unquoted
Debt Securities Classified as Loans
(UDSCL) category in accordance with
Circular No. 494.
2. In the case of other SPs, the host
contract shall be booked under the ASS,
HTM or UDSCL category in accordance
with X388.5.
Host contracts of investments in CLNs
and Other SPs shall in no case be booked
under the Due from Other Banks or
Interbank Loans Receivable accounts.
Accounting for embedded derivatives
The bifurcated embedded derivatives shall
be accounted for as Derivatives Held for
Trading with fair value changes reflected
in profit or loss, except in cases where the
bifurcated embedded derivatives are
designated and effective hedging
instruments, which shall be booked under
the Derivatives Held for Hedging
account. The following shall be observed
for purposes of FRP reporting of bifurcated
embedded derivatives:
The entire notional amount (or
leveraged notional amount in cases of
leveraged exposures) of the hybrid contract
and the corresponding positive/(negative)
fair value of the embedded derivatives shall
APP. 66a
08.12.31
be reported in Schedule 4 (Derivatives

Held for Trading Embedded Derivatives)
of the FRP.
In the case of CLNs and Other SPs
that have more than one embedded
derivatives
(multiple
embedded
derivatives) that are required to be
separated from the hybrid contract, the
entire notional amount (or leveraged
notional amount in cases of leveraged
exposures) of the hybrid contract and the
corresponding positive/(negative) fair value
of the embedded derivatives shall be
reported in Schedule 4 (Derivatives Held
for Trading Embedded Derivatives) of the
FRP for each type of bifurcated derivatives.
Generally, multiple embedded
derivatives in a single instrument are
treated as a single compound embedded
derivative.
However,
embedded
derivatives that are classified as equity are
accounted for separately from those
classified as assets or liabilities. In addition,
if an instrument has more than one
embedded derivatives and those
derivatives relate to different risk
exposures and are readily separable and
independent of each other, they are
accounted for separately from each other.
Marking to market guidance

In addition to the marking to market
guidelines provided under PAS 39, banks
should likewise consider apart from the
carrying amount of the host contract the
notional amount (or leveraged notional
amount in cases of leveraged exposures)
of embedded derivatives in marking to
market the hybrid financial instrument.
For this purpose, the term CLN shall
include similar instruments such as
credit linked deposits (CLDs) and credit
linked loans (CLLs) where the repayment
of the principal to the note holder is
contingent upon the occurrence of a
defined credit event. On the other hand,
other SPs (as defined under X602.15)
shall refer to a financial instrument where
the total return is a function of one or
more underlying indices, such as interest
rates, equities and exchange rates. It is
composed of a host contract (e.g., plain
vanilla debt or equity securities) and an
embedded derivative (e.g., swaps,
forwards or options) that re-shape the
risk-return pattern of the hybrid
instrument. The term SP does not include
asset-backed securities.
(M-2008-010 dated 07 March 2008)
APP. 67
05.12.31
THE GUIDELINES FOR THE IMPOSITION OF MONETARY PENALTY FOR

VIOLATIONS/OFFENSES WITH SANCTIONS FALLING UNDER SECTION 37 OF
R.A. NO. 7653 ON BANKS, DIRECTORS AND/OR OFFICERS
(Appendix to Secs. X199, X299, X399, X499, X599, X699)
The schedule of penalty, categorized based on: (1) the nature of offenses such as minor,
less serious, and/or serious, and (2) the asset size of the bank, shall be as follows:
A. For Serious Offense
Asset Size Up to
Penalty
P200.0
Range
million
Minimum
Medium
Maximum
Above P200.0 Above P500.0 Above P1.0 Billion Above P10.0 Above
million but
million but
but not
Billion but
P50.0
not exceeding not exceeding
exceeding
not exceeding Billion
P500.0 million P1.0 Billion
P10.0 Billion
P50.0 Billion
P 500
P 1,000
P 3,000
P 10,000
P 18,000
P 25,000
750
1,500
5,000
12,500
20,000
27,500
1,000
2,000
7,000
15,000
22,000
30,000
B. For Less Serious Offense

Asset Size Up to Above P200.0 Above P500.0 Above P1.0 Billion
Penalty
P200.0
million but
million but
but not
Range
million not exceeding not exceeding
exceeding
P10.0 Billion
Minimum P 300
P 600
P 1,000
P 3,000
Medium
350
700
1,250
4,000
Maximum
400
800
1,500
5,000
Above P10.0 Above

Billion but
P50.0
P50.0 Billion
P 7,000
P 15,000
8,500
17,500
10,000
20,000
C. For Minor Offense

Asset Size Up to
Penalty P200.0
Range
million
Minimum P 150
Medium
200
Maximum
250
Above P200.0 Above P500.0 Above P1.0 Billion Above P10.0 Above
million but
million but
but not
Billion but
P50.0
not exceeding not exceeding
exceeding
P10.0 Billion
P50.0 Billion
P 300
P 600
P 1,000
P 3,000
P 6,000
400
700
1,500
4,000
8,000
500
800
2,000
5,000
10,000
For purposes of this Regulation, the

following definition of terms shall mean:
1. Serious Offense - This refers to
unsafe or unsound banking practice. An
unsafe or unsound practice is one (1) in
which there has been some conduct,
whether act or omission, which is contrary
to accepted standards of prudent banking
operation and may result to the exposure
of the bank and its shareholders to
abnormal risk or loss.
(a) In determining the acts or

omissions included under the unsafe or
unsound banking practice, an analysis of
the impact thereof on the banks/quasibanks/trust entities operations and financial
condition must be undertaken, including
evaluation of capital position, asset
condition, management, earnings posture
and liquidity position. The following
circumstances shall be considered:
(b) The act or omission has resulted or
may result in material loss or damage, or
APP. 67
05.12.31
abnormal risk or danger to the safety,

stability, liquidity or solvency of the
institution;
(c) The act or omission has resulted or
may result in material loss or damage or
abnormal risk to the institutions depositors,
creditors, investors, stockholders or to the
Bangko Sentral or to the public in general;
(d) The act or omission has caused any
undue injury, or has given unwarranted
benefits, advantage or preference to the
bank or any party in the discharge by the
director or officer of his duties and
responsibilities through manifest partiality,
negligence; or
(e) The act or omission involves
the bank, quasi-bank or trust entity,
whether or not the director or officer
profited or will profit thereby.
Certain acts or omissions as falling
under this classification maybe determined
based on the guidelines provided under
Appendix 48.
2. Less Serious Offense - These
include major acts or omissions defined
as bank/individuals failure to comply
with the requirements of banking laws,
rules and regulations, provisions of
Manual of Regulations (MOR)/Circulars/
Memorandum as well as Monetary Board
directives/instructions having material1/
impact on Banks solvency, liquidity or
profitability and/or those violations
classified as major offenses under the
Report of Examination, except those
classified under unsafe or unsound
banking practice.
3. Minor Offense - These include acts
or omissions which are procedural in
nature, can be corrected immediately and

do not have material impact on the
solvency, liquidity and profitability of the
Bank. All other acts or omissions that
cannot be classified under the major
offenses/violations will be classified under
this category.
4. Minimum refers to the range of
penalties to be imposed if the mitigating
factor(s) outweigh the aggravating
circumstances.
5. Medium refers to the penalty to be
imposed in the absence of any mitigating
and aggravating circumstances or if the
mitigating factor(s) offset the aggravating
factor(s).
6. Maximum refers to the penalty to
be imposed if the aggravating
circumstances outweigh the mitigating
factor(s).
In determining the amount of penalty,
a two-stage assessment shall be conducted
as follows:
Step 1: Determine the nature of
offense whether it is: (a) Serious; (b) Less
Serious; or (c) Minor Offense; and
Step 2: Determine whether there are
aggravating and/or mitigating factors (as
listed and defined in Annex A).
Both the aggravating and mitigating
factors shall be considered for initial
penalty imposition and subsequent
requests for reconsideration thereto.
The foregoing monetary penalties shall
be without prejudice to the imposition of
non-monetary sanctions, if and when
deemed applicable by the Monetary
Board. Violations of banking laws and
Bangko Sentral regulations with specific
penal clause are not covered by this
Regulation.
1/
SFAS/IAS defines materiality as any information, which if omitted or misstated, could influence the economic decisions of users taken on the basis of the financial statements. Per Financial Accounting Standard Board (FASB), it is defined as
the magnitude of an omission or misstatement of accounting information xxx.
APP. 67
05.12.31
Annex A
Aggravating and Mitigating Factors to
be Considered in the Imposition of Penalty
1. Aggravating Factors
(a) Frequency of the commission of
specific violation. This pertains to
commission or omission of a specific
offense involving either the same or
different transaction. This will also refer to
a violation which may have been corrected
in the past but found repeated in another
transaction/account in the subsequent
examination.
In determining frequency, the number
of times of commission or omission of a
specific offense during the preceding three
(3) - year period shall also be considered.
The word offense pertains to a violation
that connotes infraction of existing BSP rules
and regulations as well as non-compliance
with BSP/MB directives.
(b) Duration of violations prior to
notification. This pertains to the length of
time prior to the latest notification on the
violation. Violations that have been existing
for a long time before it was revealed/
discovered in the regular examination or
are under evaluation for a long time due to
pending requests or correspondences from
banks on whether a violation has actually
occurred shall be dealt with through this
criterion. Violations outstanding for more
than one (1) year prior to notification, at
the minimum, will qualify as violations
outstanding for a long time.
(c) Continuation of offense or
omission after notification. This pertains
to the persistence of an act or offense after
the latest notification on the existence of
the violation, either from the appropriate
SED or from the Monetary Board and/or
Deputy Governor, in cases where the
violation has been elevated accordingly.
This covers the period after the final
notification of the existence of the violation
until such time that the violation has been
corrected and/or remedied. The corrective

action shall be reckoned with from the date
of notification.
(d) Concealment. This factor pertains
to the cover up of a violation. In evaluating
this factor, one shall consider the intention
of the party(ies) involved and whether
pecuniary benefit may accrue accordingly.
Intention precedes concealment. The
act of concealing an offense or omission
carries with it the intention to defraud
regulators. Moreover, the amount of
pecuniary benefit, which may or may not
accrue from the offense or omission, shall
also be considered under this factor.
Concealment may be apparent in cases
when bank officers purposely complicates
the transaction to make it difficult to
uncover or refuse to provide information/
documents that would support the
violation/offense committed.
Inasmuch as concealment and intention
are speculative matters and may be difficult
to establish, appropriate support of facts or
circumstantial evidence in this factor shall
be considered.
(e) Loss or risk of loss to bank. In
assessing this factor, potential loss refers to
any time at which the bank was in danger
of sustaining a loss.
Substantial actual loss. The Bank has
been exposed to a significant loss of
earnings and capital. The volume of
accounts involved in the loss is substantial/
significant in relation to the institutions
assets and capital. The bank/individual may
have substantial/serious violations that
could impact the reputation and earnings
of the bank.
Minimal actual loss or substantial risk
of loss. The Bank has incurred minimal
loss or will be exposed to substantial risk
of loss of earnings or capital although both
do not materially impact financial
condition. The volume of accounts
involved for minimal loss or substantial risk
APP. 67
05.12.31
of loss is reasonable and manageable. While

a loss was incurred, the bank could absorb
the loss in the normal course of business.
Substantial risk of loss includes any potential
losses the aggregate of which amounts to
at least one percent (1%) of the capital of
the bank1.
Minimal risk of loss. The risk exposure
on earnings or capital is minimal. Bank is
not vulnerable to significant loss. The
volume of accounts involved for potential
loss/risk is minimal/negligible. The risk of
loss would have little impact on the bank
or its financial condition. The risk of loss
aggregating to less than one percent (1%)
of the capital of the bank will fall under this
classification.
(f) Impact to bank/banking industry. In
assessing this factor, it is appropriate to
consider any possible negative impact or harm
to the bank. (e.g. A violation of law involving
insider abuse may result in adverse publicity
for the institution, possibly causing a run on
deposits and affecting the banks liquidity).
Resulting effect on the banking industry on
the violation/offenses committed by the bank,
if any, will also be considered. Sources of data
may come from news reports.
Substantial impact on bank. No impact
on banking industry. This may involve
reputational risk of the bank as a result of
negative publicity generated for example,
by involvement of banks director/officer in
activities not acceptable to the regulatory
bodies, e.g. pyramiding, investment scams
etc. This may also involve insider abuse of
authority/power. However, the banking
industry is not affected for this isolated case.
Moderate impact on banking industry
or on public perception of banking
industry. This may involve poor corporate
governance and mismanagement of bank
that may result to erosion of public
confidence leading to bank run in various
branches. This may also trigger a bank run
in other subsidiaries.
Substantial impact on banking industry

or on public perception of banking
industry. This is a worst-case scenario. The
violations/irregular activities of the bank
may totally erode the trust and confidence
of the banking public resulting to a
nationwide bank run. Pessimistic
perception of the banking public on the
banking industry is highly observed.
2. Mitigating Factors
(a) Good faith. Good faith is the absence
of intention of the of the erring individual/
entity in the commission of a violation.
Full cooperation. This is determined by
the actions of the individual and/or bank
towards the regulators after or even before
notification of the offense and/or omission.
Assitance rendered by the Bank during the
investigation and/or examination
conducted relative to the cited offense and/
or omission may be viewed favorably when
computing the amount of penalty to be
imposed on the Bank/individual.
With positive measures/action
undertaken although not corrected
immediately. The bank is willing to remedy/
correct the violation but is being restrained
of its capacity to take immediate action thus,
will undertake a Memorandum of
Undertaking/Commitment for a specified
period as a sign of good faith. The bank has
started to rectify the infraction by instituting
reforms in their operations or systems.
Voluntay disclosure of offense. Voluntary
disclosure of the bank of the offense
committed before it is discovered by BSP
examiners in the regular/special examination
or in the supervisory work (e.g. submission
of reports to the BSP disclosing the violation
committed by the bank based on the internal
auditor's findings) may be considered as the
highest level of mitigation under this factor.
The burden of proof, however, falls on
the bank/individual to support its/his/her claim
of good faith and may be used as basis to mitigate
the amount of penalty that may be imposed.
1
Circular 410 dated 29 October 2003 provides that external auditors of banks must report to BSP, among others, any
potential losses the aggregate of which amounts to at least one percent (1%) of the capital to enable the BSP to take timely and
appropriate remedial action.
APP. 68
07.12.31
IMPLEMENTATION OF THE DELIVERY BY THE SELLER OF SECURITIES TO THE

BUYER OR TO HIS DESIGNATED THIRD PARTY CUSTODIAN
(Appendix to Sec. X441 and Subsecs. X235.5 & X238.1)
Section 1. Statement of Policy. Pursuant
to the policy of the BSP to promote the
protection of investors in order to gain their
confidence in the securities market as
enunciated under Circular Nos. 392 and
428 dated 23 July 2003 and 27 April 2004,
respectively, the following rules/
guidelines shall be observed by banks and
NBFI under BSP supervision in their
dealings in securities whether they are
acting as seller, buyer, agent or custodian.
The disposition of compliance issues
of this Appendix is shown in Appendix 68a.
The guidelines on the delivery of
government securities by the selling bank
to an investors Principal Securities
Account with the RoSS through the Client
Interface System facility are in Appendix
68b.
Sec. 2. Distinction Between a Custodian
and a Registry. A securities custodian is a
BSP-accredited bank or NBFI designated
by the investor to perform the functions of
safekeeping, holding title to the securities
either in a nominee or trustee capacity,
reports rendition, mark-to-market
valuation, administration of dividends or
interest earnings and representation of
clients in corporate actions. It may also
perform value added services such as
collecting and paying and securities
borrowing and lending as agent. A BSPaccredited custodian is considered a third
party if it has no subsidiary or affiliate
relationship with the issuer or seller of
securities.
On the other hand, a securities
registry, other than the Bureau of Treasury,
is a BSP-accredited bank or NBFI
designated or appointed by the issuer to
maintain the securities registry book either
in electronic or in printed form. It records

the initial issuance of the securities and
subsequent transfer of ownership and issues
registry confirmation to the buyers/holders.
Except as otherwise provided in existing BSP
regulations, a BSP-accredited securities
registry is considered a third party if it has
no subsidiary or affiliate relationship with
the issuer of securities.
Sec. 3. Registry of Scripless Securities
of the Bureau of Treasury. The Bureau
of Treasury, as operator of the RoSS, which
serves as the official registry for
government securities, is not subject to
BSP accreditation and is exempted from
the independence requirement under the
existing BSP regulations.
Sec. 4. Delivery of Securities. Pursuant to
existing BSP regulations, securities sold on
a without recourse basis shall be delivered
by the seller to the purchaser, or to his
designated BSP-accredited custodian
which must not be a subsidiary or affiliate
of the issuer or seller.
Sec. 5. Mode of Delivery. If the securities
sold are certificated, delivery shall be
effected physically to the purchaser, or to
his designated BSP-accredited custodian.
The certificate must be transferred to and
registered under the name of the purchaser
and properly recorded in the registry book.
On the other hand, delivery of
immobilized or dematerialized securities
shall be effected by means of book entry
transfer to the appropriate securities
account of either: (1) the purchaser in a
registry of said securities; or (2) the
purchasers designated custodian in a
registry of said securities. Book-entry
APP. 68
07.12.31
transfer to a sub-account for clients under

the primary account of the seller will not
be deemed compliant with this
requirement. The delivery must be
supported by a confirmation of book-entry
transfer to be issued by the securities
registry in case of name on registry or by a
confirmation receipt to be issued by the
custodian in case of delivery to the
purchasers designated custodian.
Sec. 6. Client Information. Selling or
dealing banks shall inform their clients of
the requirements under Secs. 3 and 4
above, together with the complete list of
all BSP-accredited custodians. The selling
or dealing bank or NBFI must inform their
clients that the choice of custodian is the
sole prerogative of the securities purchaser.
The seller or dealer may, however, indicate
to their clients their preferred custodian.
Attached as Annex A is a suggested
template of the letter to the client.
Sec. 7. Custodianship Agreement. The
securities owner/purchaser shall enter into
a custodianship agreement with a BSPaccredited third-party custodian of his
choice. However, the securities
purchasers/owners may designate/appoint
through a special power of attorney (SPA)
a representative or agent for the purpose
of opening and maintaining an account
with the BSP-accredited third-party
custodian: Provided, That if the securities
seller or dealer is appointed as an agent,
its authority shall be limited to the opening
of the custodianship account and the
execution of trade transactions (i.e. buying
and selling instructions including relaying
of instructions to the custodian to receive
or deliver securities in order to
consummate the buy/sell transactions). It
shall be the responsibility of the custodian
to protect the interest of the client by
ensuring that the agent is acting within the
scope of his authority.
Sec. 8. Authority of the Securities Owner/

Purchaser to Revoke Special Power of
Attorney (SPA). Whenever a securities
owner/purchaser executes an SPA
designating/appointing an agent to open and
maintain a custodianship account with a
BSP-accredited third party custodian
pursuant to Sec. 6 above, said SPA shall
clearly stipulate that the appointment of the
agent is revocable at the instance of the
securities owner/purchaser or his agent.
Any revocation by either party shall be
made in writing and must be given to the
other party and to the custodian. The
custodian is hereby enjoined to
acknowledge and respect said right of the
client. It is, however, understood that the
revocation of the SPA shall be without
prejudice to any transaction executed by
the agent or custodian prior to said partys
knowledge of the revocation. Upon
revocation of the SPA, the custodian shall
deal directly with the securities owner or
his newly appointed agent. However, the
custodian has the right to impose additional
reasonable conditions similar to those
being imposed on separate custody
accounts maintained directly by individual
or corporate clients.
Sec.
9.
Reports
of
the
Custodian. Periodic reports of the
custodian on account balances shall be
rendered at least quarterly and shall reflect
the mark-to-market valuation of the security
in accordance with existing BSP
regulations. It shall be delivered, mailed
or electronically transmitted directly to the
securities owner unless the securities
owner gives a written request or instruction
directly to the custodian to deliver said
reports to a person/entity named therein.
Said request/instruction of the securities
owner shall indicate that he is appointing
an agent/ representative for the purpose,
notwithstanding contrary advice of the
BSP.
APP. 68
07.12.31
Aside from the periodic reports, the

custodian shall also issue confirmation of
transfers of ownership as they occur in
either electronic or printed form
delivered directly to the securities
owner, unless the securities owner
gives a written request or instruction
directly to the custodian to deliver the
confirmation reports to a person/entity
named therein.
Sec. 10. Right of the Securities Owner
to Sell his Securities. Subject to the
requirements of existing laws and
regulations, securities owners shall have
the right to choose the best buyers of his
securities in the secondary market,
without limiting himself to the original
selling or dealing bank that he transacted
with. The securities seller or dealer shall
not impose any condition that will impair
this right of the securities owner or leave
him no alternative except to sell his
securities exclusively to the selling or
dealing bank.
Sec. 11. Undelivered Securities. In
cases where banks or NBFIs under BSP
supervision maintain custody of securities
which were sold prior to the effectivity of
Circular No. 457 dated 14 October 2004
to clients who are unable or unwilling to
take delivery of said securities pursuant
to the provisions of Circular No. 392 dated
23 July 2003 but who declined to deliver
their existing securities to a BSPaccredited third party custodian, said
banks/FIs shall:
a. report on a quarterly basis to the
appropriate department of the SES the
volume of said securities broken down
into maturity dates, type of security, ISIN
or applicable certificate or reference
number, and registry; and
b. ensure that said securities under
custody are segregated from their
proprietary holdings.
Sec. 12. Compliance with the Anti-Money

Laundering Act of 2001. For purposes of
compliance with the requirements of R.A.
No. 9160, otherwise known as the AntiMoney Laundering Act of 2001, as
amended, particularly the provisions
regarding customer identification,
recordkeeping and reporting of suspicious
transactions, a BSP-accredited custodian
may rely on referral by the seller/issuer of
securities, in lieu of the face-to-face contact
with client, subject to the following
conditions:
a. the seller/issuer is also a covered
institution;
b. the seller/issuer certifies to the
custodian that it has performed its own KYC
screening on the client;
c. the custodian has unchallenged
access to the KYC records/documents of
the referring seller/issuer pertaining to the
referral client;
d. the custodian maintains a record of
the referral together with the minimum
information/documents required under the
law and its implementing rules and
regulations; and
e. the seller/issuer must provide the
custodian with the following minimum
information/documents:
For individual clients:
1. Name;
2. Present address;
3. Permanent address;
4. Date and place of birth;
5. Nationality;
6. Nature of work and name of employer
or nature of self-employment/business;
7. Contact numbers;
8. Tax identification number, SSS
number or GSIS number;
9. Specimen signature; and
10. Source of fund(s);
For corporate clients:
1. Articles of Incorporation/
Partnership;
APP. 68
07.12.31
2. By-laws;
3. Official address or principal
business address;
4. List of directors/partners;
5. List of principal stockholders
owning at least two percent (2%) of the
capital stock;
6. Contact numbers;
7. Beneficial owners, if any;
8. Authorized signatories;
9. Board/Partnership Resolution on
the authority of the signatories; and
10. Verification of the identification and
authority of the person purporting to act on
behalf of the client.
Sec. 13. Safekeeping of Customers
Identification Documents. The BSP
accredited third-party custodian may
entrust to the referring seller/dealer the
safekeeping and maintenance of the
customer identification documents

supporting its KYC certification: Provided,
That:
a. The BSP accredited custodian has
received a certification from the seller/
dealer that it has in its possession all
required KYC documents and the custodian
shall maintain a list of such documents;
b. The accredited custodian shall
have unhampered access to the KYC
documents for its own verification; and
c. KYC or customer identification
documents shall be made available to
regulators for verification upon request.
Notwithstanding Secs. 12 and 13, the
custodian is not precluded from
conducting its own KYC activities and
maintaining direct custody of the KYC
documents of its clients.
(Circular No. 524 dated 31 March 2006 and as amended by
M-2007-002 dated 23 January 2007)
APP. 68
07.12.31
Annex A
TEMPLATE OF LETTER TO INVESTOR
Dear Investor:
We wish to inform you that the Bangko Sentral ng Pilipinas (BSP), in July of 2003
issued Circular No. 392, Series of 2003, which requires all securities sold by banks on a
without recourse basis (i.e. the bank has no liability to the buyer of securities in paying
the obligation due on the security) to be delivered to the buyer/purchaser of securities
through any of the following means:
(a) If the security is evidenced by a certificate of indebtedness, the certificate
must be transferred in the name of the purchaser/buyer and physically delivered
to the purchaser/buyer or to his designated BSP-accredited third party custodian.
(b) If the security is immobilized or dematerialized (i.e., that the security is not
evidenced by a certificate of indebtedness and instead security account is
created in the electronic books of the registry in the name of the purchaser/
buyer or his designated custodian):
i.
The security must be delivered by book-entry transfer to the appropriate

securities account of the buyer in the registry of said securities which must
be evidenced by a confirmation in writing by the registrar to the buyer.
The confirmation of sale or document of conveyance shall be physically
delivered by the seller or dealer to the buyer, or
ii.
The security must be delivered by book-entry transfer to the appropriate

securities account of the BSP-accredited third party custodian designated
by the buyer/purchaser in the registry of said securities which must be
evidenced by a confirmation in writing by the registrar to the said BSPaccredited third party custodian, who shall in turn issue to the securities
owner a delivery receipt acknowledging receipt of the securities
Circular No. 392 is part of a package of reforms to support the development of the
domestic capital market through enhanced investor protection and greater market
transparency. It provides for a more defined role and responsibilities for the custodians and
registrars and a stricter supervision and regulation thereof by the BSP. It aims to provide the
client with the following benefits:
a.
b.
c.
d.
Full control and possession of the securities purchased;

Independent validation of the existence of securities purchased;
Regular reporting of securities holdings; and
Capability to choose most competitive counter-parties in case of sale, pledge,
transfer, and lending of securities.
APP. 68
07.12.31
Moreover, Circular No. 392, which amends CBP Circular 437-74, seeks to address
the changes in the legal framework brought by the developments in the market, i.e., where
purchase of securities may be evidenced not only by transfer of certificates but also by
electronic book-entry transfer of ownership in the books of the registrar for said security.
As an investor, therefore, of securities which is dematerialized or scripless, you
have the option to require your dealer/broker to deliver the securities to you by requiring
them to have the securities registered directly in your name in the registry of said securities
or by requiring them to have the securities registered in the name of the BSP accredited
third party custodian of your choice who in turn will credit your securities account with
them.
The registry is a BSP-accredited bank or non-bank financial institution (NBFI) designated
or appointed by the Issuer to (1) maintain the securities registry book; (2) record the (a) issuance
of the securities and (b) subsequent transfers of ownership thereof; and (3) issue registry
confirmation to the buyers/holders of security.
The custodian, on the other hand, is a BSP-accredited bank or NBFI designated by
the investor to safekeep the security by allowing it to hold title to the security, either in a
nominee or trustee capacity, to enable it to perform the following administrative functions/
services related to investing in a security or various securities: i) Mark to market valuation
of security that will enable the client to know the value of his investment at any period in
time; ii) compute and collect the interest due on the security; iii) render statements on
outstanding securities under safekeeping; iv) represents the client (per its instruction) in the
events of default or breach of contract of the issuer; and v) lend the security of the clients as
agent that will enable the client to earn additional income on the security.
The registrars and custodians underwent a rigorous evaluation process by the BSP
to determine whether they have the following: i) adequate capital to cover for potential
operating risks related to performing its custody functions; ii) competent management team
to manage the company with responsibility and proper corporate ethics; iii) robust
technology system to operate the custody business efficiently; and iv) favorable track record
or significant experience in the custody business or related business. They will also undergo
regular audit by the BSP to ensure that they comply with BSP rules and regulations and will
be subject to penalties and administrative sanctions for any violation thereof.
As of date, BSP has accredited the following registrars and custodians: Bank of the
Philippine Islands, CITIBANK N.A., Deutsche Bank, Hongkong and Shanghai Banking
Corporation, Philippine Depository and Trust Corporation, and Standard Chartered Bank.
The Registry of Scripless Securities (RoSS) operated by the Bureau of Treasury (BTR)
which is acting as a registry for government securities, is automatically accredited as securities
registry. However, the BTR, as registry, cannot act as custodian of government securities
pursuant to the opinion of the Secretary of Justice rendered on 17 January 2005 due to
irreconcilable conflict of loyalties that is anathema to agency if the same institution were to
act as registrar and custodian at the same time.
APP. 68
07.12.31
The custodian shall render periodic reports on your account balances on a quarterly
basis, or at such interval as you may require. Moreover, the custodian shall issue to you a
confirmation of any transfer of ownership as it occurs, in either electronic or printed forms.
Said reports shall be delivered/mailed directly at your address unless you give a written
instruction directly to the custodian to deliver the said reports to your designated person/
entity. You are, however, required to acknowledge in the written instruction that you are
designating another person/entity to receive the periodic reports from the custodian,
notwithstanding contrary advice of the BSP.
Please note that the abovementioned arrangements may change once the BSP issues
more detailed implementing rules and guidelines to the abovementioned circulars. We will
update you if and when these developments occur.
Please fill up and sign the required documentation of your chosen custodian and
we will forward the same to them so that your securities account can be opened as soon as
possible. You may, however, designate/appoint an agent for this purpose. In either case,
the custody arrangement may or may not entail additional fees.
If you have any further questions, please call us so that we can refer the matter to
the appropriate custodian/registrar.
Very truly yours,
(Circular No. 524 dated 31 March 2006 and as amended by M-2007-002 dated 23 January 2007)
APP. 68a
06.12.31
DISPOSITION OF COMPLIANCE ISSUES ON APPENDIX 68

(Appendix to Sec. X441 and Subsecs. X235.5 & X238.1)
A. The Monetary Board, in its Resolution
No. 581 dated 5 May 2006 approved a thirty
(30) calendar day period from 05 June 2006
within which banks/non-banks will effect
revisions to non-conforming SPAs issued by
investor-clients to strictly conform to the limited
authority provisions of Section 7 of Appendix
68, subject to the following conditions:
1. The clean-up of SPAs will cover
those issued by clients prior to Circular No.
524 dated 31 March 2006;
2. Custodians will allow transfers of
securities from proprietary accounts of
dealers to their omnibus principal custody
accounts within the period;
3. There will be no penalties imposed
for dealer-banks and accredited securities
custodians that allowed non-compliant SPAs
prior to Circular No. 524 dated 31 March
2006 or those issued under Circular Letter
dated 4 August 2005 if corrected within the
thirty (30)-day period; and
4. Non-compliance with other
provisions of Appendix 68 are not covered/
qualified to be corrected within the thirty (30)day period and are therefore subject to the
usual penalty/sanctions under existing
regulations.
B. The Monetary Board, in its
Resolution No. 876 dated 06 July 2006
approved the following disposition of
compliance issues for the period of 05 July
2006 - 04 August 2006:
1. The sending by a dealing bank to all
its clients of:
(a) a notice indicating a limitation on
the authority of the dealing bank pursuant
to Section 7 of Appendix 68; and
(b) compliant SPA for execution
will be deemed substantial compliance
only as of 05 July 2006. Proof thereof should
be preserved for examination purposes.
2. Custodians will be deemed in
substantial compliance as of 05 July 2006 if
they have obtained confirmation from the
dealing banks that notifications on the

limitation of the dealing banks authority,
together with a compliant SPA for the clients
signature, have been sent to all their clients.
Absent confirmation from the dealing bank
of the sending of notices and the revised
SPA, the custodian should immediately
freeze (i.e., no new movements in the
security, except sale or disposition thereof)
the account to be considered in substantial
compliance.
3. Absent a compliant SPA, the dealing
bank and custodian should freeze the
account of the client. Accordingly, if a client
wants to transact with securities, the dealing
bank must require the submission of an
executed compliant SPA before any new
transaction can be entered into. Otherwise,
the dealing bank will be subject to the
appropriate penalties prescribed under
Subsec. X441.29. However, for the period
of 05 July 2006 - 04 August 2006,
transactions by the dealing bank with its
clients, absent a compliant SPA but to which
an advice on the limitation of the authority
of the dealing bank and a compliant SPA for
signature have been sent, will be subject to
a fine of P10,000.00 per transaction/day:
Provided, That the total penalty arising from
that class of violation for the said period shall
not exceed P100,000.00, computed in
accordance with Section 37 of R.A. No. 7653
(The New Central Bank Act). Furthermore,
the Custodian will not be subject to any
penalties for accepting securities subject of
the transaction.
4. Starting on 05 August 2006, the
penalties under Subsec. X441.29 shall be
applied for any violation of the provisions
of Appendix 68. Custodians shall be
required to freeze the securities account for
those without a compliant SPA from the
investor.
(M-2006-009 dated 06 July 2006 and M-2006-002 dated 05 June
2006)
APP. 68b
07.12.31
DELIVERY OF GOVERNMENT SECURITIES TO THE INVESTORS PRINCIPAL

SECURITIES ACCOUNT WITH THE REGISTRY OF SCRIPLESS SECURITIES
(Appendix to Sec. X441, and Subsecs. X235.5 and X238.1)
The following are the guidelines on the
delivery of government securities by the
selling bank and/or NBFI under the
supervision of the BSP to an investors
Principal Securities Account with the
through the Client Interface System facility
as compliance with the requirement of
effective delivery under Sec. X441 and
Subsecs. X235.5, X238.1, X238.3 and X441.12:
(a) Banks/NBFIs, acting either as
accredited government securities eligible
dealers (GSEDs) or licensed government
securities dealers, shall execute the attached
Memorandum of Agreement (MOA) with the
BTr regarding the creation of the Principal
Securities Account with the RoSS on or
before 31 January 2007. The MOA between
the BTr and the GSED is attached as
Annex A.
(b) If the dealing bank/NBFI is
designated as the agent of the client/investor,
the authority of the dealing bank/NBFI under
the Special Power of Attorney (SPA)
executed by the client/investor shall be
limited to the opening of the Principal
Securities Account with the RoSS and the
execution of trade transactions (i.e., buying
and selling instructions, including relaying
of instructions to the BTr, as operator of the
RoSS, to receive and deliver securities in order
to consummate the buy/sell transaction).
(c) Banks/NBFIs shall require their
clients/investors who have manifested the
desire to have their own Principal
Securities Account with the RoSS to execute
(1) an SPA pursuant to Sec. X441 and
Subsecs. X235.5, X238.1 and X238.3 and
(2) the revised Investors Undertaking
(attached as Annex B) on or before 28
February 2007.
(d) Absent a compliant Investors
Undertaking and SPA as of 01 March 2007,
the dealing bank/NBFI should freeze the

account of the client/investor (i.e., no new
movements in the account, except sale/
disposition upon written instruction by the
client/investor): Provided, That starting 01
March 2007 no new Investors Principal
Securities Account shall be created unless
the investor submits a compliant Investors
Undertaking and SPA. Otherwise,
the dealing bank/NBFI will be subject to the
appropriate penalties prescribed under Sec.
X441 and Subsecs. X235.5, X238.1, X238.3
and X441.12.
(e) The sub-accounts in the RoSS
maintained by dealing banks/NBFI for their
client/investor who either (1) declined in
writing the delivery of his/its securities to a
direct registry account under his/its name
or a third-party custodian or (2) have not
responded to the dealers letter to the client/
investor as regards the disposition of his/
its securities shall be frozen. However,
sale/disposition of securities in the subaccounts shall be allowed upon written
instruction by the client/investor to dispose
the same: Provided, That in case of a client/
investor who as of 04 November 2004 has
not responded to the dealers letter
regarding the disposition of his/its
securities, the dealer should be able to
obtain from the said client/investor the
written instruction regarding the client/
investors inability to take delivery of
existing securities. For clarity, the subaccounts maintained by the dealing banks/
NBFIs shall not be considered a violation
of Subsecs. X235.5, X238.1, X238.3 and
X441.12: Provided, That (1) the same
were created on or before 04 November
2004; and (2) no additional securities
have been lodged thereon since
04 November 2004.
(M-2007-002 dated 23 January 2007)
APP. 68b
07.12.31
Annex A
MEMORANDUM OF AGREEMENT
This agreement made and entered into this __________________ at
_________________, Philippines by and between:
The BUREAU OF THE TREASURY, a duly constituted government
bureau under the Department of Finance, Republic of the Philippines,
with principal office at Palacio del Gobernador Building, Gen. Luna
corner A. Soriano Avenue, Intramuros, Manila, represented herein by
the Treasurer of the Philippines, _________________________, and
hereinafter referred to as BTr;
-and__________________________________________, a domestic/
international banking/financial institution organized and existing pursuant
to the laws of the Republic of the Philippines/(country of incorporation),
duly licensed by the Securities and Exchange Commission (SEC) to deal
in
securities,
represented
herein
by
___________________________________ in her/his capacity as
____________________________, and hereinafter referred to as the
Dealer;
(the BTr and the Dealer may be referred to as a Party in the singular
tense, as Parties in the plural/collective tense)
WITNESSETH: THAT
WHEREAS, the Registry of Scripless Securities (RoSS) is the official registry of
government securities issued by the National Government through the Bureau of the
Treasury;
WHEREAS, the RoSS is an electronic registry of recording ownership of or interest
in and transfers of government securities;
WHEREAS, the delivery of government securities sold by the Dealer, on a without
recourse basis, to the investors Principal Securities Account with the RoSS through the
Client Interface System (CIS) Facility shall be sufficient compliance with the delivery
requirement under Subsec. X238.1, of the Bangko Sentral ng Pilipinas (BSP) Manual of
Regulations for Banks (MORB) and Circular No. 524 dated 31 March 2006.
WHEREAS, the Dealer is a government securities eligible dealer, accredited by
the BTr to participate in the primary auction of government securities pursuant to Finance
APP. 68b
07.12.31
Department Order No. 141-95, as amended, and/or a bank/financial institution licensed by

the SEC to deal in government securities in the secondary market;
WHEREAS, investors of government securities purchase/trade the same in the
secondary market through any of the dealers;
WHEREAS, recording of ownership of, or interest in government securities requires
the creation/opening of a Principal Securities Account with the RoSS through the CIS Facility;
WHEREAS, to promote transparency, investor confidence and deepening of the
government bond market, investors must be given adequate assistance in the opening/
creation of his/its Principal Securities Account with the RoSS (Name-on- Registry);
NOW, THEREFORE, in view of the foregoing premises and the mutual covenants
hereinafter provided, the parties hereby agree as follows:
Section 1. Obligations of BTr.
The BTr shall:
1. Receive instruction from the Dealer through the RoSS-CIS for the creation/
opening of the Principal Securities Account, as indicated in the Special Power of
Attorney executed by the investor in favor of the Dealer for that purpose;
2. Create/open in the RoSS a Principal Securities Account for the requesting investor
of scripless government securities through which all transactions affecting said
securities will be recorded;
3. Provide and forward to the investor an electronic confirmation of his/its RoSS
Principal Securities Account Number and notices and statements of account under
any of the modes indicated in the Investors Oath of Undertaking submitted to the
BTr;
4. On relevant coupon/maturity payment dates and for payments made through
the BSP, instruct the BSP to credit the regular demand deposit account (DDA) of
the investors settlement bank: Provided, That if the coupon/maturity payment date
falls on a Saturday, Sunday, or Holiday or on a day during which business operations
of the BTr is suspended, payment/s shall be made by the BTr on the next business
day, without adjustment in the amount of interest to be paid.
5. Ensure that all government securities bought by investors from the Dealer are
accurately recorded under the investors Principal Securities Account or to the
Securities Custody Account of the investors designated third-party custodian.
6. Furnish the investor with Statement(s) of Securities Account, at least quarterly
and whenever there is a movement in the investors Principal Securities Account,
through the investors preferred mode of receipt of notice and/or statement;
APP. 68b
07.12.31
7. Consistent with BTr Memoranda dated 28 December 2005, 12 January 2006

and 31 January 2006 and applicable BSP regulations, disallow any increase in the
holdings of beneficial owners of securities recorded in the sub-account of the Dealer,
if any, existing as of 02 February 2006, for beneficial owners of securities who
have either (a) declined in writing the delivery of his/its securities to a direct registry
account under his or its name or a third-party custodian or (b) not responded to the
Dealers letter to the investor as regards the disposition of his/its securities. Any
withdrawal or sale of the securities, either partial or total, under the sub-account of
the Dealer for the beneficial owners may only be allowed if the Dealer is authorized
in writing by the client/Investor. Such written authority shall be furnished by the
Dealer to the BTr prior to the execution of the transaction.
Sec. 2. Obligations of the Dealer
The Dealer shall:
1. Assist the investor to open his/its individual Principal Securities Account (NameOn-Registry) with the RoSS through the CIS facility;
2. Conduct the Know your Client (KYC) screening of its investors/clients referred
to the BTr for the creation of the Principal Securities Account (Name-On-Registry)
with the RoSS. In this connection it shall: (a) issue a certification to the BTr that it
has conducted the necessary KYC screening; (b) maintain client identification
records; (c) report any suspicious transaction in accordance with the provisions of
R.A. No. 9160, otherwise known as the Anti-Money Laundering Act of 2001, as
amended, and its implementing rules and regulations; and whenever necessary,
(d) afford BTr unchallenged access to said KYC records/documents. The same KYC
or customer identification documents shall likewise be made available to regulators
for verification upon request.
3. Transmit the investors instructions to the RoSS for the creation/opening of a
Principal Securities Account. For this purpose, the Dealer shall submit and/or inform
the investor to submit to the BTr his/her settlement account maintained in a
settlement bank of his/her choice, through which all relevant payments on the
securities will be made by the BTr;
4. Upon the creation of the investors Principal Securities Account with the BTrs
RoSS to which the securities subject of a sale will be credited, immediately furnish
the investor with the BTrs electronic confirmation of its creation. The Dealer shall
also provide to the investor the BTr electronic confirmation that includes a statement
on the credited amount of securities;
5. Ensure that Special Power of Attorney (SPA) executed by client investors in their
favor as agents of the former be limited, pursuant to BSP Circular No. 524;
6. Ensure that all government securities sold to investors are delivered to their
appropriate Principal Securities Account with the RoSS, or to the account of the
investors designated custodian;
APP. 68b
07.12.31
7. Undertake not to misuse the investors RoSS Account No., which may come
into its possession upon the creation of a Principal Securities Account for the investor
or on previous transactions with the investor;
8. Acquaint/apprise investors on the rules and procedure prescribed by the BTr in
connection with investment and trading of scripless government securities, including
but not limited to coupon payment, redemption value/proceeds of the investors
securities, legal encumbrances, and other relevant information relative to investors
security holdings. As a minimum, investors must be apprised of the Revised RoSS
Procedure on Buy and Sell of Securities and recording of transfers through the
RoSS-CIS facility found in the BTr website, with particular emphasis on the feature
of non-tagging of securities to GSEDs, or non-exclusivity of the selling GSEDs for
subsequent transactions;
9. Whenever designated as authorized agent, provide BTr upon reasonable request,
all evidence of authority to transact on the securities issued by investor to such
authorized agent;
10. Whenever designated as authorized agent and/or settlement bank, ensure
confidentiality and prompt delivery of all notices and statements of securities
account/s to investors;
11. Ensure that all instructions transmitted to BTr concerning the securities account
of clients-investors are legal, valid and duly authorized pursuant to an agreement,
a special power of attorney, or any written authority executed by the client-investor
in favor of the dealer; and
12. Disallow any increase in the securities holdings of clients recorded in its subaccount in the RoSS, with respect to clients who have either (a) declined in writing
the delivery of his/its securities to a direct registry account under his or its name or
a third-party custodian or (b) have not responded to the Dealers letter to the investor
as regards the disposition of his/its securities. The Dealer shall allow the client/
investor to withdraw or sell, whether partial or total, from the said securities holdings
recorded in the Dealers sub-account only upon written request/instruction by the
investor/client: Provided, That in case of investors who have not responded to the
Dealers letter regarding the disposition of his/its securities, the Dealer should be
able to obtain from such investor a written advice that he is neither willing to take
delivery nor have his securities delivered to a third-party custodian. The dealer
shall furnish BTr such written request/instruction prior to the execution of the
transaction.
Sec. 3. Cut Off Period. No transfer of securities shall be allowed (i) during the period of
two (2) business days ending on (and including) the due date of any redemption payment
of principal and (ii) during the period of two (2) business days ending on (and including) the
due date of any coupon payment date (the Closed Period). BTr shall prevent any transfer
of the securities to be recorded in the RoSS during any Closed Period. Bondholders of
record as appearing in the RoSS as of the Closed Period will be treated by BTr as the
beneficial owners of such securities for any relevant payment.
APP. 68b
07.12.31
Sec. 4. Settlement Bank. Whenever the Dealer is designated by the investor as his/its
settlement bank, it shall confirm receipt of payments from BTr intended for the investor
and shall promptly and punctually credit the investors bank account all said relevant
payments on the securities. Upon the crediting of the regular DDA of the Dealer with BSP
for the applicable payments, the investor shall be considered as having been fully paid on
his/its securities and the Dealer shall then be responsible to the investor. The BTr, its
officers and employees and agents shall not be made liable for any claim, liability, or
responsibility for damages or injury incurred by the investor on account of the Dealers
failure to pay/credit the investors settlement account.
Sec. 5. Compliance with Anti-Money Laundering Law. The Dealer shall be responsible
for compliance with the requirements of Anti-Money Laundering Law and other banking
laws, rules and regulations relative to reporting of suspicious accounts and deposits.
Sec. 6. Limitation of Liability. The BTr, its officers, employees and agents shall not be
held liable for any claim, liability or responsibility for damages or injury incurred by the
investor on account of the loss of his/its securities holdings unless the loss or injury was
caused by the act or omission of the BTr. Likewise, the BTr, its officers, employees and
agents shall be rendered free and harmless from any liability on account of effecting
instruction/s transmitted by the Dealer to the RoSS which the latter believed in good faith
to have emanated from the Dealer.
Sec. 7. Sanctions for Fraudulent Transactions. In case the Dealer commits any fraudulent
act or transaction in connection with government securities or violates any of its undertakings
herein, the BTr shall have the right to impose administrative sanctions such as but not
limited to dis-accreditation and/or suspension of accreditation as a government securities
eligible dealer, and other administrative sanctions as may be prescribed by competent
authorities without prejudice to civil or criminal prosecution in accordance with law.
Sec. 8. Amendment and Repeal. This agreement may be amended, modified or repealed
by the parties in writing, by giving 30 days prior written notice.
Sec. 9. Effectivity. This agreement shall take effect immediately.
IN WITNESS WHEREOF, the parties have hereunto signed these presents this
_____________________ at _____________________.
BUREAU OF THE TREASURY
By:
_______________________
[Dealer]
By:
_______________________
President & CEO
Signed in the presence of:
_______________________
_______________________
APP. 68b
07.12.31
Republic of the Philippines)

________________________) S.S
ACKNOWLEDGMENT
BEFORE ME, a Notary Public for and in the City of ________________, personally
appeared:
Name
CTC No.
Date & Place Issued

Rep. by the Treasurer of the
Philippines
________
________________
________
________________
[Dealer]
Rep. by ____________________
known to me to be the same persons who executed the foregoing instrument consisting
of ____ ( ) pages, including this page where this Acknowledgment is written, and
acknowledge to me that the same is their free and voluntary act and deed and of the
agency/institution they represent.
WITNESS MY HAND AND NOTARIAL SEAL this _____________ at
__________________, Philippines.
NOTARY PUBLIC
Doc. No.: ______
Page No.: ______
Book No.:______
Series of ______
APP. 68b
07.12.31
Annex B
NOTE: TO BE SUBMITTED TO THE
BUREAU OF THE TREASURY
INVESTORS UNDERTAKING
I/We,
For Individual Investors
of legal age
Name:
Address:
Civil Status:
For Juridical Entity

authorized to do business
in the Philippines
Name:
Principal Office Address:
Place of Incorporation:
Name of Representative:
Capacity/Position of Representative:
A. Hereby agree to execute, pursuant to BSP Circular 524, a limited Special Power of
Attorney in favor of either the dealing Government Securities Eligible Dealer1
(GSED) or Securities Dealer2 for the creation of a Principal Securities Account with
the RoSS or for the execution of trade transactions (i.e. buying and selling instructions,
including relaying of instructions to the CUSTODIAN to receive or deliver
securities in order to consummate the buy/sell transactions) and to be bound by
the provisions of a written Authority or a special power of attorney, or any relevant
agreement I/we have entered into concerning my/our government security
holdings, thereby confirming my/our authority for BTr-RoSS to carry out and execute
the acts or instructions referred to in the aforesaid documents;
B. It is understood that the RoSS administered by the BTr is the official registry of
ownership of or interest in government securities; that all government securities
floated/originated by NG under its scripless policy are recorded in the RoSS as
well as subsequent transfer of the same; and that I/we will abide by the rules and
regulations of BTr-RoSS concerning government securities.
And further undertake as follows:
1. To create/open through the Client Interface System a Principal Securities Account
with the RoSS to ensure that title of said scripless securities is officially recorded in
my/our name and under my/our control.
2. That as a condition for the creation/opening of my/our Principal Securities Account
with the RoSS, I/we have opened a bank account with
(__________________________________ as Settlement Bank) to which coupon
and maturity proceeds and any other payments to be made on my/our government
securities holdings will be credited; undertake to furnish the RoSS of said bank
____________________
1 Accredited by the Bureau of the Treasury
2 Licensed by the Securities and Exchange Commission
APP. 68b
07.12.31
account number; and give notice at least three (3) business days prior to any coupon
and/or maturity payment of any change in the Settlement Bank and/or bank account
number.
3. That no transfer of securities shall be made (i) during the period of two (2) business
days ending on (and including) the due date of any redemption payment of principal
and (ii) during the period of two (2) business days ending on (and including) the
due date of any coupon payment date (the Closed Period). I/We further acknowledge
that the BTr shall prevent any transfer of the securities to be recorded in the RoSS
during any Closed Period.
4. That in the case of outright sale transactions of government securities, including that
of RTBs, I/we undertake to sell the same to any of the GSEDs or Securities Dealers,
save those provided for under existing rules and regulations on government
securities applicable to tax-exempt institutions, government-owned or controlled
corporations and local government units. Otherwise, I/we shall have the said
securities delivered to my/our agent/custodian for trading or any other transactions
pursuant to a relevant written instruction/authority.
5. To receive notices and/or statements of account on a quarterly basis or whenever
there is a movement in my Principal Securities Account from the RoSS through
any of the following modes:
(Please indicate choice)
[ ] Pick-up at the RoSS
[ ] Registered Mail to Home/Office Address _______________________
[ ] Deliver electronically to Agent
[ ] Deliver electronically to Settlement Bank (for pick up)
[ ] Email - email address_________________
In the absence of an indicated choice, I/we understand that the BTr shall electronically
deliver all Notices and Statements to my/our designated settlement bank.
Note: In addition to the indicated manner of receiving notice(s) and statement(s),
Investor can directly secure from the BTr written copy of any notice, statement of
account, or confirmation report, subject to prior notice to and in accordance with
the procedures of the BTr.
I/We hereby agree to abide with the Schedule of Fees and the manner of collection,
as may be prescribed by the BTr from time to time.
6. That I/we expressly agree and acknowledge that the crediting to the regular DDA of
my/our settlement bank of coupons and/or redemption value due my/our scripless
securities, shall constitute actual receipt of payment by me/us.
7. To hold the BTr, its officers, employees and agents free and harmless against all
suits, actions, damages or claims arising from failure of my/our Settlement Bank to
credit my/our bank account for coupons and maturity values on due date.
APP. 68b
07.12.31
8. That all instructions affecting my/our scripless securities which are transmitted to
or received in good faith the RoSS from myself/ourselves or my/our designated
agent/custodian are covered by relevant documentation indicating my/our express
consent and authority.
9. That I/we expressly warrant and authorize the delivery of copies of all evidence of
authority granted to my/our designated agent/custodian to transact on my/our
scripless securities upon reasonable demand by BTr.
10. That I/we undertake to immediately notify the RoSS of any unauthorized trade of my/
our scripless securities, and until receipt of such notice, transactions effected by BTr
in good faith are deemed valid.
11. To render free and harmless the BTr, its officers, employees and agents for any
claim or damages with respect to trade instructions carried out in good faith.
12. That while it is understood that BTr shall maintain the strict confidentiality of records
in the RoSS, I/we hereby expressly waive and authorize BTr, to the extent allowed by
law, to disclose relevant information in compliance with Anti-Money Laundering
laws, rules and regulations.
13. To submit to the BTr the relevant special power of attorney or authorizations issued
to my/our agent, upon demand of BTr.
IN WITNESS WHEREOF, I/We hereunto affix our hands this _____ day of
_______________ at _____________________, Philippines.
__________________________________
Name & Signature of Investor
Conforme:
_________________________________
Settlement Bank
APP. 68b
07.12.31
ACKNOWLEDGMENT
BEFORE ME, a Notary Public for and in the City of _____________, personally
appeared:
Name:
CTC No.
______________________________ _________
(Investor or Representative of Juridical Entity)
Date:
Place of Issue:
____________
________________
known to me to be the same person who executed the foregoing instrument and he/she
acknowledged to me that the same is his/her free and voluntary act and deed (and the free
act and deed of the entity they represent).
WITNESS MY HAND AND NOTARIAL SEAL this ___________ at _________________,
Philippines.
NOTARY PUBLIC
Doc. No.: ______
Page No.: ______
Book No.:______
Series of ______
APP. 69
06.12.31
PROMPT CORRECTIVE ACTION FRAMEWORK

In carrying out its primary objective of
maintaining price stability conducive to a
balanced and sustainable growth of the
economy 1 , the BSP must necessarily
maintain stability of the financial system
through preservation of confidence therein.
While preservation of confidence in the
financial system may call for closure of
mismanaged banks and/or financial entities
under its jurisdiction, such closure is not
the only option available to the BSP. When
a banks closure, for instance, is adjudged
by the Monetary Board to have adverse
systemic consequences, the State may act
in accordance with law to avert potential
financial system instability or economic
disruption.2
It is recognized that the closure of a
bank or its intervention can be a costly and
painful exercise. For this reason, the BSP,
as supervisor, can enforce PCA3 as soon as
a banks condition indicates higher-than
normal risk of failure.
PCA essentially involves the BSP
directing the board of directors of a bank,
prior to an open outbreak of crisis, to
institute strong measures to restore the
entity to normal operating condition within
a reasonable period, ideally within one (1)
year. These measures may include any or
all of the following components:
(1) Implementation of a capital
restoration plan;
(2) Implementation of a business
improvement plan; and
(3) Implementation of corporate
governance reforms.
Capital restoration plan this
component contains the schedule for
building up a banks capital base (primarily
through an increase in Tier 1 capital) to a
level commensurate to the underlying risk

exposure and in full compliance with
minimum capital adequacy requirement.
In conjunction with this plan, the BSP may
also require any one (1), or a combination
of the following:
1. Limit or curtail dividend payments
to common stockholders;
2. Limit or curtail dividend payments
to preferred stockholders; and
3. Limit or curtail fees and/or other
payments to related parties.
Business improvement plan this
component contains the set of actions to
be taken immediately to bring about an
improvement in the entitys operating
condition, including but not limited to any
one (1), or a combination of the following:
1. Reduce risk exposures to
manageable levels;
2. Strengthen risk management;
3. Curtail or limit the banks scope of
operations including those of its subsidiaries
or affiliates where it exercises control;
4. Change or replace management
officials;
5. Reduce expenses; and
6. Other measures to improve the
quality of earnings.
Corporate governance reforms this
component contains the actions to be
immediately taken to improve the
composition and/or independence of the
board of directors and to enhance the quality
of its oversight over the management and
operation of the entity. This also includes
measures to minimize potential
shareholder conflicts of interest detrimental
to its creditors, particularly, depositors in a
bank. This likewise lays down measures
to provide an acceptable level of financial
Section 3 of Republic Act No. 7653

Section 17 and 18 of Republic Act No. 3591, as amended
3
Section 4.6 of Republic Act No. 8791
1
2
APP. 69
06.12.31
transparency to all stakeholders. Such actions

could include, but are not limited to, any one
(1), or a combination of the following:
1. A change in the composition of the
board of directors or any of the mandatory
committees (under the MORB);
2. An enhancement to the frequency
and/or depth of reporting to the board of
directors;
3. A reduction in exposures to and/or
a termination or reduction of business
relationships with affiliates that pose
excessive risk or are inherently
disadvantageous to the supervised financial
institution; and
4. A change of external auditor.
A bank may be subject to PCA
whenever any or all of the following
conditions obtain:
(1) When either of the Total Risk-Based
Ratio1, Tier 1 Risk-Based Ratio, or Leverage
Ratio2 falls below ten percent (10%), six
percent (6%) and five percent (5%),
respectively, or such other minimum levels
that may be prescribed for the said ratios
under relevant regulations, and/or the
combined capital account falls below the
minimum capital requirement prescribed
under Subsec. X106.1;
(2) The CAMELS composite rating is less
than 3 or a Management component rating of
less than 3 ;
(3) A serious supervisory concern has
been identified that places a bank at morethan-normal risk of failure in the opinion of
the director of the Examination Department
concerned, which opinion is confirmed by
the Monetary Board. Such concerns could
include, but are not limited, to any one (1)
or a combination of the following:
a. Finding of unsafe and unsound
activities that could adversely affect the
interest of depositors and/or creditors;
b. A finding of repeat violations of law
or the continuing failure to comply with
Monetary Board Directives; and
1
2
c. Significant reporting errors that

materially misrepresent the banks
financial condition.
The initiation of PCA shall be
recommended by the Deputy Governor,
SES to the Monetary Board for approval.
Any initiation of PCA shall be reported to
the PDIC for notation. Upon PCA
initiation, the BSP shall require the bank
to enter into a MOU committing to the
PCA plan. The MOU shall be subject to
confirmation by the MB.
In order to monitor compliance with
the PCA, quarterly progress reports shall
be made. The BSP reserves the right to
conduct periodic on-site visits outside of
regular examination to validate
compliance with the PCA plan.
Subject to Monetary Board approval,
sanctions may be imposed on any bank
subject to PCA whenever there is
unreasonable delay in entering into a PCA
plan or when PCA is not being complied
with. These may include any or all of the
following:
(1) monetary penalty on or curtailment
or suspension of privileges enjoyed by
the board of directors or responsible
officers;
(2) restriction on existing activities that
the supervised financial institution may
undertake;
(3) denial of application for branching
and other special authorities;
(4) denial or restriction of access to BSP
credit facilities; and
(5) restriction on declaration of
dividends.
On the other hand, if the bank subject
to PCA promptly implements a PCA plan
and substantially complies with its
conditions, it may continue to have access
to BSP credit facilities notwithstanding
non-compliance with standard conditions
of access to such facilities. The Deputy
Governor, SES shall recommend such
Otherwise known as Capital Adequacy Ratio (CAR)

Total Capital /Total Assets
APP. 69
06.12.31
exemption to the Monetary Board for

approval.
In cases where a banks problems are
deemed to be exceptionally serious from
the outset, or when a bank is unwilling to
submit to the PCA or unable to substantially
comply with an agreed PCA plan, the
Deputy Governor, SES may immediately
recommend to the Monetary Board more
drastic actions as prescribed under Section
29 (conservatorship) and Section 30
(receivership) of R.A. 7653.
Subject to Monetary Board approval,

the PCA status of a bank may be lifted:
Provided, That the bank fully complies with
the terms and conditions of its MOU and:
Provided, further, That the Deputy
Governor, SES has determined that the
financial and operating condition of the
bank no longer presents a risk to itself or
the financial system. Such improved
assessment shall be immediately reported
to the PDIC.
APP. 70
07.12.31
CONSUMER PROTECTION FOR ELECTRONIC BANKING

1. E-Banking Oversight Function
(a) Banks board of directors (BOD)
and a senior management committee are
responsible for developing the banks
e-banking business strategy and establishing
an effective management oversight over
e-banking services.
The BOD is expected to take an explicit,
informed and documented strategic decision
as to whether and how the bank is to provide
e-banking services to their customers. Effective
management oversight encompasses the
review and approval of the key aspects of the
banks security control program and process,
such as the development and maintenance of
security control policies and infrastructure that
properly safeguard e-banking systems and data
from both internal and external threats. It also
includes a comprehensive process for
managing risks associated with increased
complexity of and increasing reliance on
outsourcing relationships and third-party
dependencies to perform critical e-banking
functions.
It is also incumbent upon the BOD and
banks senior management to take steps to
ensure that their banks have updated and
modified where necessary, their existing risk
management policies and processes to cover
their current or planned e-banking services.
The integration of e-banking applications
with legacy systems implies an integrated
risk management approach for all banking
activities.
(b) Banks compliance officer should
ensure that proper controls are incorporated
into the system so that all relevant
compliance issues are fully addressed.
1
Management and system designers

should consult with the compliance officer
during the development and implementation
stages of e-banking products and services.
This level of involvement will help decrease
banks compliance risk and may prevent the
need to delay deployment or redesign
programs that do not meet regulatory
requirements.
2. E-Banking Risk Management and Internal
Control
(a) Information Security Program
Banks should establish and maintain
comprehensive information security
program and ensure that it is properly
implemented and strictly enforced. They
should also encourage the development of
a security culture within the organization.
The information security program should
include, at a minimum, the following:
Identification and assessment of
risks associated with e-banking products and
services;
Identification of risk mitigation

actions, including appropriate authentication
technology and internal controls;
Information disclosure and
customer privacy policy; and
Evaluation of consumer awareness
efforts.
Banks should adjust or update, as
appropriate, their information security
program in light of any relevant changes in
technology, the sensitivity of its customer
information and internal or external threats
to information such as increasing incidence
of identity theft1.
There are several schemes perpetrated by these identity thieves, e.g., credit card fraud, account takeover fraud,
new account fraud and check fraud.
Credit card fraud is where a fraudster causes the credit card of another person to be charged for a purchase.
Account takeover fraud occurs when a fraudster obtains an individuals personal information, and changes
the official mailing address with that individuals FI. Once accomplished, the fraudster has established a
window of opportunity in which transactions are conducted without the victims knowledge. New account
fraud involves the criminal using a false identity, made-up or stolen; to open a new account, typically to obtain
a credit card or loan. Check fraud may either be done through (i) alterations to the check, (ii) forgeries of the
makers signature on either the face of the check or the payees endorsement at the back of the check, or (iii)
counterfeit checks created by a dishonest third party
APP. 70
07.12.31
(b) Information Security Measures

Banks should ensure that their
information security measures and internal
control related to e-banking are installed,
regularly updated, monitored and is
appropriate with the risks associated with
their products and services.
Annex A and Annex B provide for the
minimum security measures that banks
should employ in their ATM facilities and
internet/mobile banking activities,
respectively, to protect depositors and
consumers from fraud, robbery and other
e-banking crimes.
Banks should also take into account
other relevant industry security standards
and sound practices as appropriate, and
keep up with the most current information
security issues (e.g., security weaknesses
of the wireless environment), by sourcing
relevant information from well-known
security resources and organizations.
(c) Authentication
To authenticate the identity of e-banking
customers, banks should employ
techniques appropriate to the risks
associated with their products and services.
The implementation of appropriate
authentication methodologies should start
with a risk assessment process. The risk
should be evaluated based on the type of
customer; the customer transactional
capabilities (e.g., bill payment, fund
transfer, inquiry); the sensitivity of customer
information and transaction being
communicated to both the bank and the
customer; the ease of using the
communication method; and the volume
of transactions.
Because
the
standards
for
implementing a commercially reasonable
system may change over time as
technology and other procedures develop,
banks and technology service providers
should continuously review, evaluate and
identify authentication technology and
ensure appropriate changes are
implemented for each transaction type and

level of access based on the current and
changing risk factors. Account fraud and
identity theft are frequently the result of
single-factor
(e.g.,
ID/password)
authentication exploitation. Where risk
assessments indicate that the use of singlefactor authentication is inadequate, banks
should
implement
multi-factor
authentication (e.g., ATM card and PIN),
layered security, or other controls
reasonably calculated to mitigate those risks.
Banks' authentication process should be
consistent with and support the banks
overall security and risk management
programs. An effective authentication
process should have customer acceptance,
reliable performance, scalability to
accommodate growth, and interoperability
with existing systems and future plans as
well as appropriate policies, procedures,
and controls.
(d) Account Origination and Customer
Verification
With the growth in e-banking and
e-commerce, banks should use reliable
methods of originating new customer
accounts. Potentially significant risks may
arise when a bank accepts new customers
through the internet or other electronic
channels. Thus, in an e-banking
environment, banks need to ensure that in
originating new accounts, the KYC (know
your customer) requirement which
involves a face-to-face process is strictly
adhered to.
(e) Monitoring and Reporting of
E-banking Transactions
Monitoring systems can determine if
unauthorized access to computer systems
and customer accounts has occurred. A
sound monitoring system should include
audit features that can assist in the detection
of fraud, money laundering, compromised
passwords, or other unauthorized activities.
The activation and maintenance of audit
logs can help banks to identify unauthorized
APP. 70
07.12.31
activities, detect intrusions, reconstruct

events, and promote employee and user
accountability. This control process also
facilitates banks in the submission of
suspicious activities reports as required by
the AMLC and other regulatory bodies.
Adequate reporting mechanisms are
needed to promptly inform security
administrators when users are no longer
authorized to access a particular system and
to permit the timely removal or suspension
of user account access.
Whenever critical systems or processes
are outsourced to third parties, management
should ensure that the appropriate logging
and monitoring procedures are in place and
that suspected unauthorized activities are
communicated to the bank in a timely
manner.
An independent party (e.g., internal or
external auditor) should also review activity
reports documenting the security
administrators actions to provide the
necessary checks and balances for managing
system security.
3. Consumer Awareness Program
Consumer awareness is a key defense
against fraud and identity theft and security
breach. Annex C provides for the minimum
Consumer Awareness Program that banks
should convey to their customers.
To be effective, banks should
implement and continuously evaluate their
consumer awareness program. Methods to
evaluate a programs effectiveness include
tracking the number of customers who
report fraudulent attempts to obtain their
authentication credentials (e.g., ID/password),
the number of clicks on information security
links on websites, the number of inquiries.
4. Disclosure and Business Availability
(a) Banks are required to provide their
customers with a level of comfort regarding
information disclosures or transparencies,
protection of customer data and business

availability that they can expect when using
traditional banking services.
To minimize operational, legal and
reputational risks associated with e-banking
activities, banks should make adequate
disclosure of information and take
appropriate measures to ensure adherence
to customer privacy and protection
requirements. Annex D provides for the
minimum disclosure requirement of the
banks.
Likewise, to meet customers
expectations, banks should have effective
capacity, business continuity and
contingency planning. They should have the
ability to deliver e-banking services to all
end-users and be able to maintain such
availability in all circumstances (e.g., 24/7
availability). Effective incident response
mechanisms and communication strategies
are also critical to minimize risks arising from
unexpected events, including internal and
external attacks.
(b) Banks should apply to e-banking
financial transactions and disclosures the
record retention provisions required in
paper-based transactions.
A written policy or procedure needs to
define vital records relating to e-banking
financial transactions and disclosures and
the corresponding retention period of these
records.
5. Complaint Resolution
Banks may receive customer complaint
either through an electronic medium or
otherwise, concerning an unauthorized
transaction, loss, or theft in its e-banking
account. Therefore, banks should ensure
that controls are in place to review these
notifications and that an investigation is
initiated as required. Banks should also
establish procedures to resolve disputes
arising from the use of the e-banking
products and services.
APP. 70
07.12.31
6. Applicability
This appendix is intended for all
e-banking services and products offered
by the banks to their customers. Although
these are focused on the risks and risk
management techniques associated with
an electronic delivery channel to protect
customers and the general public, it should
be understood, however, that not all of the
consumer protection issues that have arisen

in connection with new technologies are
specifically addressed in this appendix.
Additional issuances may be issued in the
future to address other aspects of consumer
protection as the financial service
environment through e-banking evolves.
(CL-2007-048 dated 24 September 2007; Circular No. 542 dated
01 September 2006)
APP. 70
06.12.31
Annex A
AUTOMATED TELLER MACHINE (ATM) SAFETY MEASURES

To minimize/prevent ATM frauds and
crimes, banks should, at a minimum,
implement the following security measures
with respect to their ATM facilities:
1. Locate ATMs in highly visible areas;
2. Provide sufficient lighting at and
around the ATMs;
3. Where ATM crimes (e.g., robbery,
vandalism) are high in a specific area or
location, banks should install surveillance
camera or cameras which shall view and
record all persons entering the facility. Such
recordings shall be preserved by the banks
for at least thirty (30) days;
4. Implement ATM programming
enhancements like masking/non-printing of
card numbers;
5. Educate customers by advising them
regularly of risks associated with using the
ATM and how to avoid these risks;
6. Conduct and document periodic
security inspection at the ATM location, and
make the pertinent information available to
their clients;
7. Educate bank personnel to be

responsive and sensitive to customer concerns
and to communicate them immediately to
the responsible bank officer; and
8. Post near the ATM facility a clearly
visible sign which, at a minimum, provides
the telephone numbers of the bank as well
as other banks hotline numbers for other
cardholders who are allowed to transact
business in the ATM, and police hotlines for
emergency cases.
Banks must study and assess ATM
crimes to determine the primary problem
areas. Procedures for reporting ATM crime
should also be established. Knowing what
crimes have occurred will aid the banks in
recognizing the particular crime problem
and to what degree it exists so that they can
implement specific prevention measures to
mitigate the risk. In this connection, banks
are encouraged to share information
involving ATM fraud cases to deter and
prevent proliferation of the crime.
APP. 70
06.12.31
Annex B
INTERNET AND WIRELESS BANKING SECURITY MEASURES

1. Network controls
a. Implement adequate security
measures on the internal networks and
network connections to public network or
remote parties. Segregate internal networks
into different segments having regard to the
access control needed for the data stored in,
or systems connected to, each segment.
b. Properly design and configure the
servers and firewalls used for the e-banking
services either internet-based or delivered
through wireless communication networks
(e.g., install firewalls between internal and
external networks as well as between
geographically-separate sites).
c. Deploy strong and stringent
authentication and controls especially in
remote access or wireless access to the
internal network.
d. Implement anti-virus software,
network scanners and analyzers, intrusion
detectors and security alert as well as conduct
regular system and data integrity checks.
e. Maintain access security logs and
audit trails. These should be analyzed for
suspicious traffic and/or intrusion attempts.
f. Ensure that wireless software for
wireless communication network includes
appropriate audit capabilities (e.g.,
recording dropped transactions).
g. Develop built-in redundancies for
single points of failure which can bring down
the entire network.
2. Operating Systems Controls
a. Harden operating systems by
configuring system software and firewall
to the highest security settings consistent
with the level of protection required,
keeping abreast of enhancements, updates
and patches recommended by system
vendors.
b. Change all default passwords for

new systems immediately upon installation
as they provide the most common means
for intruders to break into systems.
3. Encryption
a. Implement encryption technologies
that are appropriate to the sensitivity and
importance of data to protect confidentiality
of information while it is stored or in passage
over external and internal networks.
b. Choose encryption technologies
that make use of internationally recognized
cryptographic algorithms where the
strengths of the algorithms have been
subjected to extensive tests.
c. Apply strong end-to-end
encryption to the transmission of highly
sensitive data (e.g., customer passwords) so
that the data are encrypted all the way
between customers devices and banks
internal systems for processing the data. This
would ensure that highly sensitive data
would not be compromised even if the
banks web servers or internal networks
were penetrated.
4. Website and Mobile Banking
Authentication
a. Authenticate official website to
protect bank customers from spoofed or
faked websites. Banks should determine
what authentication technique to use to
provide protection against these attacks.
b. For wireless applications, adopt
authentication protocols that are separate
and distinct from those provided by the
wireless network operator.
5. Physical Security
a. House all critical or sensitive
computers and network equipment in
APP. 70
06.12.31
physically secure locations (e.g., away from

environmental hazards, unauthorized entry
and public disclosure, etc.).
b. Implement physical security
measures such as security barriers (e.g.,
external walls, windows); entry controls
(e.g., biometric door locks, manual or
electronic logging, security guards) and
physical protection facilities/devices (e.g.,
water and fire detectors, uninterruptible
power supply [UPS], etc.) to prevent
unauthorized physical access, damage to
and interference with the e-banking services.
6. Development and Acquisition
a. Separate
physical/logical
environments for systems development,
testing and production.
b. Provide separate environments for
the development, testing, staging and
production of internet facing web-based
applications; connect only the production
environment to the internet.
7. IT Personnel Training
Provide appropriate and updated
training to IT personnel on network,
application and security risks and controls
so that they understand and can respond to
potential security threats.
8. Service Providers
a. Perform due diligence regularly to
evaluate the ability of the service providers
(e.g., internet service provider,
telecommunication provider) to maintain an
adequate level of security and to keep
abreast of changing technology.
b. Ensure that the contractual

agreements with the service providers have
clearly defined security responsibilities.
9. Independent Audit, Vulnerability Test
and Penetration Testing
a. Conduct regular audit to assess the
adequacy and effectiveness of the risk
management process and the attendant
controls and security measures.
b. Perform vulnerability test or
assessment to evaluate the information
security policies, internal controls and
procedures, as well as system and network
security of the bank. Assessment should also
include latest technological developments
and security threats, industry standards and
sound practices.
c. Conduct penetration testing at least
annually.
d. The audit and tests should be
conducted by security professionals or
internal auditors who are independent in the
development, implementation or operation
of the e-banking services, and have the
required skills to perform the evaluation.
e. For e-banking services provided by
an outside vendor or service provider,
ensure that the above tests and audit are
performed and the bank is provided with
the results and actions taken on system
security weaknesses.
10. Incident Response
Establish an incident management and
response plan and test the predetermined
action plan relating to security incidents.
APP. 70
06.12.31
Annex C
ELECTRONIC BANKING CONSUMER AWARENESS PROGRAM

To ensure security in their e-banking
transactions and personal information,
consumers should be oriented of their roles
and responsibilities which, at a minimum,
1. Internet Products and Services
a. Secure Login ID and Password or PIN
(1) Do not disclose Login ID and
Password or PIN.
(2) Do not store Login ID and
Password or PIN on the computer.
(3) Regularly change password or PIN
and avoid using easy-to-guess passwords
such as names or birthdays. Password
should be a combination of characters
(uppercase and lowercase) and numbers
and should be at least 6 digits in length.
b. Keep personal information private.
Do not disclose personal information
such as address, mothers maiden name,
telephone number, social security number,
bank account number or e-mail address
unless the one collecting the information
is reliable and trustworthy.
c. Keep records of online transactions.
(1) Regularly check transaction history
details and statements to make sure that
there are no unauthorized transactions.
(2) Review and reconcile monthly
credit card and bank statements for any
errors or unauthorized transactions
promptly and thoroughly.
(3) Check e-mail for contacts by
merchants with whom one is doing
business. Merchants may send important
information about transaction histories.
(4) Immediately notify the bank if
there are unauthorized entries or
transactions in the account.
d. Check for the right and secure

website.
(1) Before doing any online
transactions or sending personal
information, make sure that correct
website has been accessed. Beware of
bogus or look alike websites which are
designed to deceive consumers.
(2) Check if the website is secure by
checking the Universal Resource Locators
(URLs) which should begin with https
and a closed padlock icon on the status bar
in the browser is displayed. To confirm
authenticity of the site, double-click on the
lock icon to display security certificate
information of the site.
(3) Always enter the URL of the website
directly into the web browser. Avoid being
re-directed to the website, or hyperlink it
from a website that may not be as secure.
(4) If possible, use software that
encrypts or scrambles the information
when sending sensitive information or
performing e-banking transactions online.
e. Protect personal computer from
hackers, viruses and malicious programs.
(1) Install a personal firewall and a
reputable anti-virus program to protect
personal computer from virus attacks or
malicious programs.
(2) Ensure that the anti-virus program
is updated and runs at all times.
(3) Always keep the operating system
and the web browser updated with the
latest security patches, in order to protect
against weaknesses or vulnerabilities.
(4) Always check with an updated antivirus program when downloading a
program or opening an attachment to
ensure that it does not contain any virus.
(5) Install updated scanner softwares
to detect and eliminate malicious programs
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06.12.31
capable of capturing personal or financial

information online.
(6) Never download any file or software
from sites or sources, which are not familiar
or hyperlinks sent by strangers. Opening
such files could expose the system to a
computer virus that could hijack personal
information, including password or PIN.
f. Do not leave computer unattended
when logged-in.
(1) Log-off from the internet banking
site when computer is unattended, even if
it is for a short while.
(2) Always remember to log-off when
e-banking transactions have been
completed.
(3) Clear the memory cache and
transaction history after logging out from
the website to remove account
information. This would avoid incidents of
the stored information being retrieved by
unwanted parties.
g. Check the sites privacy policy and
disclosures.
(1) Read and understand website
disclosures specifically on refund,
shipping, account debit/credit policies and
other bank terms and conditions.
(2) Before providing any personal
financial information to a website,
determine how the information will be
used or shared with others.
(3) Check the sites statements about
the security provided for the information
divulged.
(4) Some websites disclosures are
easier to find than others look at the
bottom of the home page, on order forms or
in the About or FAQs section of a site. If
the customer is not comfortable with the
policy, consider doing business elsewhere.
h. Other internet security measures:
(1) Do not send any personal
information particularly password or PIN
via ordinary e-mail.
(2) Do not open other browser

windows while banking online.
(3) Avoid using shared or public
personal computers in conducting ebanking transactions.
(4) Disable the file and printer
sharing feature on the operating system if
conducting banking transactions online.
(5) Contact the banking institution to
discuss security concerns and remedies to
any online e-banking account issues.
2. Other Electronic Products
a. ATM and debit cards
(1) Use ATMs that are familiar or that
are in well-lit locations where one feels
comfortable. If the machine is poorly lit or
is in a hidden area, use another ATM.
(2) Have
card
ready
before
approaching the ATM. Avoid having to go
through the wallet or purse to find the card.
(3) Do not use ATMs that appear to
have been tampered with or otherwise
altered. Report such condition to the bank.
(4) Memorize ATM PIN and never
disclose it to anyone. Do not keep those
numbers or passwords in the wallet or
purse. Never write them on the cards
themselves. Avoid using easily available
personal information like a birthday,
nickname, mothers maiden name or
consecutive numbers.
(5) Be mindful of shoulder surfers
when using ATMs. Stand close to the ATM
and shield the keypad with hand when
keying in the PIN and transaction amount.
(6) If the ATM is not working correctly,
cancel the transaction and use a different
ATM. If possible, report the problem to the
bank.
(7) Carefully secure card and cash in
the wallet, handbag, or pocket before
leaving the ATM.
(8) Do not leave the receipt behind.
Compare ATM receipts to monthly
statement. It is the best way to guard against
fraud and it makes record-keeping easier.
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06.12.31
(9) Do not let other people use your

card. If card is lost or stolen, report the
incident immediately to the bank.
b. Credit cards
(1) Never disclose credit card
information to anyone. The fraudulent use
of credit cards is not limited to the loss or
theft of actual credit cards. A capable
criminal only needs to know the credit card
number to fraudulently make numerous
charges against the account.
(2) Endorse or sign all credit cards as
soon as they are received from the bank.
(3) Like ATM card PINs, secure credit
card PINs. Do not keep those numbers or
passwords in the wallet or purse and never
write them on the cards themselves.
(4) Photocopy both the front and back
of all credit cards and keep the copies in a
safe and secure location. This will facilitate
in the immediate cancellation of the card if
lost or stolen.
(5) Carry only the minimum number of
credit cards actually needed and never leave
them unattended.
(6) Never allow credit card to be used
as reference (credit card number) or as an
identification card.
(7) Never give your credit card account
number over the telephone unless dealing
with a reputable company or institution.
(8) When using credit cards, keep a
constant eye on the card and the one
handling it. Be aware of the swipe and
theft scam using card skimmers. A
skimmer is a machine that records the
information from the magnetic stripe on a
credit card to be downloaded onto a
personal computer later. The card can be
swiped on a skimmer by a dishonest
person and that data can then be used to
make duplicate copies of the credit card.
(9) Do not leave documents like bills,
bank and credit card statements in an
unsecure place since these documents

have direct access to credit card and/or
deposit account information. Consider
shredding sensitive documents rather than
simply throwing them away. (Some
people will go through the garbage to find
this information).
(10) Notify the bank in advance of a
change in address.
(11) Open billing statements promptly
and reconcile card amounts each month.
card. If card is lost or stolen, report the
incident immediately to the bank.
c. Mobile Banking
(1) Do not disclose your Mobile
Banking Pin (MPIN) to anyone.
(2) Regularly change the MPIN.
mobile phone enrolled in a mobile banking
service. If the phone is lost or stolen, report
the incident immediately to the bank.
(4) Be vigilant. Refrain from doing
mobile banking transactions in a place
where you observe the presence of
shoulder surfers.
(5) Keep a copy of the transaction
reference number provided by the bank
whenever you perform a mobile banking
transaction as evidence that the specific
transaction was actually executed.
Since customers may find it difficult to
take in lengthy and complex advice, banks
should devise effective methods and
channels for communicating with them on
security precautions. Banks may make use
of multiple channels (e.g. banks' websites,
alert messages on customers mobile phone,
messages printed on customer statements,
promotional leaflets, circumstances when
banks' frontline staff communicate with
their customers) to enforce these
precautionary measures.
APP. 70
06.12.31
Annex D
DISCLOSURE REQUIREMENTS
1. General Requirement
Banks offering e-banking services
have to adopt responsible privacy
policies and information practices. They
should provide disclosures that are clear
and readily understandable, in writing, or
in a form the consumers may print and
keep.
Banks should also ensure that
consumers who sign-up for a new
banking service are provided with
disclosures (e.g. pamphlet) informing
them of their rights as a consumers. At a
minimum, the following disclosures
should be provided to protect consumers
and inform them of their rights and
responsibilities:
a. Information on the duties of the
banking institution and customers.
b. Information on who will be liable
for unauthorized or fraudulent
transactions.
c. Mode by which customers will be
notified of changes in terms and
conditions.
d. Information relating to how
customers can lodge a complaint, and
how a complaint may be investigated and
resolved.
e. Disclosures that will help
consumers in their decision-making (e.g.,
PDIC-insured, etc.)
f. For internet environment,
information that prompt in the banks
website to notify customers that they
are leaving the banking institutions
website and hence they are not protected
by the privacy policies and security
measures of the banking institutions when
they hyperlink to third partys website.
2. Disclosure Responsibility
a. Compliance officers should review
banks disclosure statements to determine
whether they have been designed to meet
the general and specific requirements set
in this circular.
b. For banks that advertise deposit
products and services on-line, they must
verify that proper advertising disclosures
are made (e.g. whether the product is
insured or not by the PDIC; fees and
charges associated with the product or
services, etc.). Advertisements should be
monitored to determine whether they
are current, accurate, and compliant.
c. For banks that issue various
products like stored value cards, ewallets, debit cards and credit cards, they
must provide information to consumers
regarding the features of each of these
products to enable consumers to
meaningfully
distinguish
them.
Additionally, consumers would find it
beneficial to receive information about
the terms and conditions associated with
their usage.
Example of these
disclosures include: PDIC-insured or noninsured status of the product; fees and
charges associated with the purchase,
use or redemption of the product; liability
for loss; expiration dates, or limits on
redemption; and toll-free telephone
number for customer service,
malfunction and error resolution.
d. Whenever e-banking services are
outsourced to third parties or service
providers, banks should ensure that the
vendors comply with the disclosure
requirements of the BSP.
APP. 71
06.12.31
GUIDELINES FOR THE CHANGE IN THE MODE OF COMPLIANCE WITH THE

LIQUIDITY RESERVE REQUIREMENT
(Appendix to Subsecs. X253.2 & X405.5)
The following guidelines shall be
observed in implementing the change in the
mode of compliance with the liquidity
reserve requirement from holding
government securities bought directly from
the BSP:
1. Government securities previously
bought from the BSP in compliance with
the liquidity reserve requirement shall
remain eligible for such purpose until these
mature or are sold back to the BSP at yields
quoted by the BSP Treasury Department
(TD). Only the outstanding ERAP and
PEACe bonds shall qualify as eligible
securities for liquidity reserves. Future
issuances will no longer carry the liquidity
reserve eligibility under this Section.
2. The interest rates applied to the
reserve deposit account (RDA) shall be set
by the TD at one-half percent (1/2%) below
the prevailing market rate for comparable
3. Pre-termination of RDAs shall be
allowed subject to a reduction in applicable
interest rates, as prescribed by the TD;
4. Banks and QBs shall submit on
placement date a written authority (see
Annex A) to the TD to debit their demand
deposit account with the BSP as payment
for the RDA;
5. Principal and interest payments at

maturity net of applicable tax shall be
made by the BSP through automatic credit
to the institutions demand deposit account
with the BSP. Full or partial rollover of
placements in the RDA shall be settled on a
gross basis;
6. Any deficiency in the liquidity
reserves shall continue to be in the forms or
modes prescribed under existing regulations
for the composition of required reserves;
7. Banks and QBs shall continue to
specify in the prescribed reports to the SDC
of the BSP the balance of government
securities held for liquidity reserve
purposes. Said balance shall decline over
time as government securities previously
bought from the BSP mature or are sold back
to the BSP; and
8. To facilitate the adoption of the
change in the mode of compliance with the
liquidity reserve requirement, the TD (while
starting to accept placements in the reserve
deposit account) shall continue to sell
government securities for liquidity reserve
purposes until 29 September 2006.
The above guidelines shall take effect on
25 August 2006.
(Circular Nos. 551 dated 17 November 2006 and 539 dated 09
August 2006)
APP. 71
06.12.31
Annex A
DEBIT/CREDIT AUTHORITY FORMAT
ORDINARY WHITE PAPER

2 COPIES
(COUNTERPARTYS LETTERHEAD)
DATE: _______________
TREASURY DEPARTMENT
TREASURY SERVICES GROUP DOMESTIC
BANGKO SENTRAL NG PILIPINAS
GENTLEMEN:
THIS IS TO CONFIRM OUR RESERVE DEPOSIT ACCOUNT (RDA) PLACEMENT WITH
YOUR OFFICE, DETAILED AS FOLLOWS:
VALUE DATE
TERM
MATURITY DATE
RATE
PRINCIPAL AMOUNT
GROSS INTEREST
WITHHOLDING TAX
LIQUIDITY RESERVES FOR
Deposit Liabilities & Deposit Substitute
(PLEASE CHECK ONE)
TOFA - Others
CTF
ACCORDINGLY, PLEASE DEBIT OUR REGULAR DEMAND DEPOSIT ACCOUNT

WITH YOURSELVES ON VALUE DATE FOR THE PRINCIPAL AMOUNT OF (AMOUNT IN
WORDS)
(P)
AND CREDIT THE SAME ACCOUNT ON MATURITY DATE THE AMOUNT
OF (AMOUNT IN WORDS)
(P) REPRESENTING FULL PAYMENT OF THE PRINCIPAL
PLUS INTEREST (NET OF APPLICABLE WITHHOLDING TAX) THEREON.
VERY TRULY YOURS,
(AUTHORIZED SIGNATORY)1
(Circular Nos. 551 dated 17 November 2006 and 539 dated 09 August 2006)
APP. 72
06.12.31
GUIDELINES ON SUPERVISION BY RISK

I.
Background
It must be recognized that banking is a
business of taking risks in order to earn
profits. While banking risks historically have
been concentrated in traditional banking
activities, the financial services industry has
evolved in response to market-driven,
technological, and legislative changes.
These changes have allowed FIs to expand
product offerings, geographic diversity,
and delivery systems. They have also
increased the complexity of the FIs
consolidated risk exposure. Because of this
complexity, FIs must evaluate, control, and
manage risk according to its significance.
The FIs evaluation of risk must take into
account how non-bank activities within a
banking organization affect the FI.
Consolidated risk assessments should be a
fundamental part of managing the FI. Large
FIs assume varied and complex risks that
warrant a risk-oriented supervisory
approach.
II. Statement of policy
The existence of risk is not necessarily
a reason for concern. Likewise, the
existence of high risk in any area is not
necessarily a concern, so long as
management exhibits the ability to
effectively manage that level of risk. Under
this approach, the BSP will not necessarily
attempt to restrict risk-taking but rather
ensure that FIs identify, understand, and
control the risks they assume. As an
organization grows more diverse and
complex, the FIs risk management
processes must keep pace. When risk is not
properly managed, BSP will direct FI
management to take corrective action such
as reducing exposures, increasing capital,
strengthening risk management processes
or a combination of these actions. In all
cases, the primary concern of the BSP is

that the FI operates in a safe and sound
manner and maintains capital commensurate
with its risks. Further guidance on risk
management issues will be addressed in
subsequent issuances that are part of the
overall risk assessment program.
III. Guidelines for risk management
For purposes of the discussion of risk,
the BSP will evaluate banking risk relative
to its impact on capital and earnings. From
a supervisory perspective, risk is the potential
that events, expected or unanticipated, may
have an adverse impact on the FIs capital
or earnings.
The BSP-SES has defined eight (8)
categories of risk for FI supervision
purposes. These risks are: credit, market,
interest rate, liquidity, operational,
compliance, strategic, and reputation. These
categories are not mutually exclusive; any
product or service may expose the FI to
multiple risks. In addition, they can be
interdependent. Increased risk in one (1)
category can increase risk in other
categories.
Types and definitions of risk
1. Credit risk arises from a
counterpartys failure to meet the terms of
any contract with the FI or otherwise
perform as agreed. Credit risk is found in
all activities where success depends on
counterparty, issuer, or borrower
performance. It arises any time FI funds are
extended, committed, invested, or otherwise
exposed through actual or implied
contractual agreements, whether reflected
on or off the balance sheet. Credit risk is
not limited to the loan portfolio.
2. Market risk is the risk to earnings or
capital arising from changes in the value
APP. 72
06.12.31
of traded portfolios of financial instruments.

This risk arises from market-making, dealing,
and position-taking in interest rate, foreign
exchange, equity and commodities markets.
3. Interest rate risk is the current and
prospective risk to earnings or capital arising
from movements in interest rates. Interest
rate risk arises from differences between the
timing of rate changes and the timing of cash
flows (repricing risk); from changing rate
relationships among different yield curves
affecting FI activities (basis risk); from
changing rate relationships across the
spectrum of maturities (yield curve risk); and
from interest-related options embedded in
FI products (options risk).
4. Liquidity risk is the current and
from an FIs inability to meet its obligations
when they come due without incurring
unacceptable losses. Liquidity risk includes
the inability to manage unplanned decreases
or changes in funding sources. Liquidity risk
also arises from the failure to recognize or
address changes in market conditions that
affect the ability to liquidate assets quickly
and with minimal loss in value.
5. Operational risk is the current and
from fraud, error, and the inability to deliver
products or services, maintain a competitive
position, and manage information. Risk is
inherent in efforts to gain strategic
advantage, and in the failure to keep pace
with changes in the financial services
marketplace. Operational risk is evident in
each product and service offered.
Operational risk encompasses: product
development and delivery, operational
processing, systems development, computing
systems, complexity of products and services,
and the internal control environment.
6. Compliance risk is the current and
from violations of, or non-conformance
with, laws, rules, regulations, prescribed
practices, internal policies and procedures,
or ethical standards. Compliance risk also

arises in situations where the laws or rules
governing certain FI products or activities of
the FIs clients may be ambiguous or untested.
This risk exposes the FI to fines, payment of
damages, and the voiding of contracts.
Compliance risk can lead to diminished
reputation, reduced franchise value, limited
business opportunities, reduced expansion
potential, and lack of contract enforceability.
7. Strategic risk is the current and
prospective impact on earnings or capital
arising from adverse business decisions,
improper implementation of decisions, or
lack of responsiveness to industry changes.
This risk is a function of the compatibility of
an organizations strategic goals, the
business strategies developed to achieve
those goals, the resources deployed against
these goals, and the quality of implementation.
The resources needed to carry out business
strategies are both tangible and intangible.
They include communication channels,
operating systems, delivery networks, and
managerial capacities and capabilities. The
organizations internal characteristics must
be evaluated against the impact of
economic, technological, competitive,
regulatory, and other environmental changes.
8. Reputation risk is the current and
prospective impact on earnings or capital
arising from negative public opinion. This
affects the FIs ability to establish new
relationships or services or continue
servicing existing relationships. This risk may
expose the FI to litigation, financial loss, or
a decline in its customer base. In extreme
cases, FIs that lose their reputation may
suffer a run on deposits. Reputation risk
exposure is present throughout the
organization and requires the responsibility
to exercise an abundance of caution in
dealing with customers and the community.
IV. FI management of risk
Because market conditions and
company structures vary, there is no
APP. 72
06.12.31
single risk management system that

works for all FIs. Each FI should tailor its
risk management program to its needs
and circumstances. Sound risk
management systems, however, have
several things in common; for example,
they are independent of risk-taking
activities. Regardless of the risk
management programs design, each
program should:
1. Identify risk: To properly identify
risks, an FI must recognize and
understand existing risks or risks that
may arise from new business initiatives,
including risks that originate in non-bank
subsidiaries and affiliates. Risk
identification should be a continuing
process, and should occur at both the
2. Measure risk: Accurate and timely
measurement of risk is essential to
effective risk management systems. An FI
that does not have a risk measurement
system has limited ability to control or
monitor risk levels. Further, the more
complex the risk, the more sophisticated
should be the tools that measure it. An FI
should periodically conduct tests to make
sure that the measurement tools it uses are
accurate. Good risk measurement systems
assess the risks of both individual
transactions and portfolios. During the
transition process in FI mergers and
consolidations, the effectiveness of risk
measurement tools is often impaired
because
of
the
technological
incompatibility of the merging systems or
other problems of integration. Therefore,
the resulting FI must make a strong effort
to ensure that risks are appropriately
measured across the consolidated entity.
Larger, more complex FIs must assess the
impact of increased transaction volume
across all risk categories.
3. Monitor risk: FIs should monitor
risk levels to ensure timely review of
risk positions and exceptions. Monitoring
reports should be frequent, timely,

accurate, and informative and should be
distributed to appropriate individuals to
ensure action, when needed. For large,
complex FIs, monitoring is essential to
ensure that managements decisions are
implemented for all geographies,
products, and legal entities.
4. Control risk: The FI should establish
and communicate risk limits through
policies, standards, and procedures that
define responsibility and authority. These
control limits should be valid tools that
management should be able to adjust
when conditions or risk tolerances change.
The FI should have a process to authorize
exceptions or changes to risk limits when
warranted. In merging or consolidating
FIs, the transition should be tightly
controlled; business plans, lines of
authority, and accountability should be
clear. Large, diversified FIs should have
strong risk controls covering all
geographies, products, and legal entities.
The Board must establish the FIs
strategic direction and risk tolerances. In
carrying out these responsibilities, the
Board should approve policies that set
operational standards and risk limits. Welldesigned monitoring systems will allow
the Board to hold management
accountable for operating within
established
tolerances.
Capable
management and appropriate staffing are
also essential to effective risk
management. FI management is
responsible for the implementation,
integrity, and maintenance of risk
management systems. Management also
must keep the directors adequately
informed. Management must:
a. Implement the FIs strategy;
b. Develop policies that define the
FIs risk tolerance and ensure that they are
compatible with strategic goals;
c. Ensure that strategic direction
and risk tolerances are effectively
APP. 72
06.12.31
communicated and adhered to throughout

the organization;
d. Oversee the development and
maintenance of management information
systems to ensure that information is
timely, accurate, and pertinent.
V. Assessment of risk management
When assessing risk management
systems, the BSP will consider the FIs
policies, processes, personnel, and control
systems. Significant deficiencies in any one
of these areas will cause the BSP to expect
the FI to compensate for these deficiencies
in their overall risk management process.
1. Policies are statements of the FIs
commitment to pursue certain results.
Policies often set standards (on risk
tolerances, for example) and recommend
courses of action. Policies should express
an FIs underlying mission, values, and
principles. A policy review should always
be triggered when an FIs activities or risk
tolerances change.
2. Processes are the procedures,
programs, and practices that impose order
on the FIs pursuit of its objectives. Processes
define how daily activities are carried out.
Effective processes are consistent with the
underlying policies, are efficient, and are
governed by checks and balances.
3. Personnel are the staff and managers
that execute or oversee processes. Good staff
and managers perform as expected, are
qualified, and competent. They understand
the FIs mission, values, policies, and
processes. Compensation programs should
be designed to attract, develop, and retain
qualified personnel. In addition,
compensation should be structured to
reward contributions to effective risk
management.
4. Control systems include the tools
and information systems (e.g, internal/
external audit programs) that FI managers
use to measure performance, make
decisions about risk, and assess the

effectiveness of processes. Feedback
should be timely, accurate, and pertinent.
VI. Supervision by Risk
Using the core assessment standards
of the BSP as guide, an examiner will
obtain both a current and prospective view
of an FIs risk profile. When appropriate,
this profile will incorporate potential
material risks to the FI from non-bank
affiliates activities conducted by the FI.
Subsidiaries and branches of foreign FIs
should maintain sufficient documentation
onsite to support the analysis of their risk
management. This risk assessment drives
supervisory strategies and activities. It also
facilitates discussions with FI management
and directors and helps to ensure more
efficient examinations. The core
assessment complements the RAS.
Examiners document their conclusions
regarding the quantity of risk, the quality
of risk management, the level of
supervisory concern (measured as
aggregate risk), and the direction of risk
using the RAS. Together, the core
assessment and RAS give the appropriate
department of the SES the means to assess
existing and emerging risks in FIs,
regardless of size or complexity.
Specifically, supervision by risk
allocates greater resources to areas with
higher risks. The appropriate department
of the SES will accomplish this by:
1. Identifying risks using common
definitions. The categories of risk, as they
are defined, are the foundation for
supervisory activities.
2. Measuring risks using common
methods of evaluation. Risk cannot always
be quantified in pesos. For example,
numerous internal control deficiencies
may indicate excessive operational risk.
3. Evaluating risk management to
determine whether FI systems and
APP. 72
06.12.31
processes permit management to

manage and control existing and
prospective levels of risk.
will discuss preliminary conclusions
regarding risks with FI management.
Following these discussions, the
appropriate department of the SES will
adjust conclusions when appropriate.
Once the risks have been clearly
identified and communicated, the
appropriate department of the SES can
then focus supervisory efforts on the areas
of greater risk within the FI, the
consolidated banking organization, and the

banking system.
To fully implement supervision by risk,
the appropriate department of the SES will
also assign CAMELS ratings to the lead FI
and all affiliated FIs. It may determine that
risks in individual FIs are increased,
reduced, or mitigated in light of the
consolidated risk profile of the FI as a
whole. To perform a consolidated analysis,
it will obtain pertinent information from FIs
and affiliates, and verify transactions
flowing between FIs and affiliates.
APP. 73
06.12.31
GUIDELINES ON MARKET RISK MANAGEMENT

I.
Background
The globalization of financial markets,
increased transaction volume and volatility,
and the introduction of complex products
and trading strategies have made market risk
management take on a more important role
in risk management. FIs now use a wide
range of financial products and strategies,
ranging from the most liquid fixed income
securities to complex derivative
instruments and structured products. The
risk dimensions of these products and
strategies must be fully understood,
monitored, and controlled by an FI.
For purposes of these guidelines, FIs
refer to banks and NBFIs supervised by the
BSP and their respective financial
subsidiaries.
The level of market risk assumed by
an FI is not necessarily a concern, so long
as the FI has the ability to effectively
manage the risk. Therefore, the BSP will
not restrict the level of risk assumed by an
FI, or the scope of its financial market
activities, so long as the FI is authorized to
engage in such activities and:
Understands, measures, monitors
and controls the risk assumed,
Adopts risk management practices
whose sophistication and effectiveness are
commensurate to the risk being monitored
and controlled, and
Maintains capital commensurate
with the risk exposure assumed.
If the BSP determines that an FIs risk
exposures are excessive relative to the FIs
capital, or that the risk assumed is not well
managed, the BSP will direct the FI to
reduce its exposure to an appropriate level
and/or strengthen its risk management
systems.
In evaluating the above parameters,

the BSP expects FIs to have sufficient
knowledge, skills and appropriate
system and technology necessary to
understand and effectively manage their
market risk exposures. The principles set
forth in these guidelines shall be used in
determining the adequacy and
effectiveness of an FIs market risk
management process, the level and trend
of market risk exposure and adequacy
of capital relative to exposure. The BSP
shall consider the following factors:
1. The major sources of market risk
exposure and the complexity and level of
risk posed by the assets, liabilities, and offbalance-sheet activities of the FI;
2. The FIs actual and prospective level
of market risk in relation to its earnings,
capital, and risk management systems;
3. The adequacy and effectiveness of
the FIs risk management practices and
strategies as evidenced by:
The adequacy and effectiveness of
Board and senior management oversight;
Managements knowledge and
ability to identify and manage sources of
market risk as measured by past and
projected financial performance;
The adequacy of internal
measurement, monitoring, and management
information systems;
The adequacy and effectiveness of
risk limits and controls that set tolerances
on income and capital losses;
The adequacy and frequency of the
FIs internal review and audit of its market
risk management process.
Further, an FIs market risk management
system shall be assessed under the FIs
general risk management framework,
consistent with the guidelines on supervision
by risk as set forth under Appendix 72.
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06.12.31
III. Market risk management process

An FIs market risk management
process should be consistent with its
general risk management framework and
should be commensurate with the level of
risk assumed. Although there is no single
market risk management system that
works for all FIs, an FIs market risk
management process should:
1. Identify market risk. Identifying
current and prospective market risk
exposures involves understanding the
sources of market risk arising from an FIs
existing or new business initiatives. An FI
should have procedures in place to identify
and address the risk posed by new products
and activities prior to initiating the new
products or activities.
Identifying market risk also includes
identifying an FIs desired level of risk
exposure based on its ability and willingness
to assume market risk. An FIs ability to
assume market risk depends on its capital
base and the skills/capabilities of its
management team. In any case, market risk
identification should be a continuing
process and should occur at both the
2. Measure market risk. Once the
sources and desired level of market risk have
been identified, market risk measurement
models can be applied to quantify an FIs
market risk exposures. However, market risk
cannot be managed in isolation. Market risk
measurement systems should be integrated
into an FIs general risk measurement system
and results from models should be
interpreted in coordination with other risk
exposures. Further, the more complex an FIs
financial market activities are, the more
sophisticated the tools that measure market
risk exposures arising from such complex
activities should be.
3. Control market risk. Quantifying
market risk exposures help an FI align
existing exposures with the identified desired
level of exposures. Controlling market risk
usually involves establishing market risk

limits that are consistent with an FIs market
risk measurement methodologies. Limits
may be applied through an outright
prohibition on exposures above a pre-set
threshold, by restraining activities or
deploying strategies that alter the risk-return
characteristics of on- and off- balance sheet
positions. Appropriate pricing strategies
may likewise be used to control market risk
exposures.
4. Monitor market risk. Ensuring that
market risk exposures are adequately
controlled requires the timely review of
market risk positions and exceptions.
Monitoring reports should be frequent,
timely and accurate. For large, complex FIs,
consolidated monitoring should be
employed to ensure that managements
decisions are implemented for all
geographies, products, and legal entities.
IV. Definition and sources of market risk
Market risk is the risk to earnings or
capital arising from adverse movements in
factors that affect the market value of
instruments, products, and transactions in
an institutions overall portfolio, both on or
off-balance sheet. Market risk arises from
market-making, dealing, and position-taking
in interest rate, foreign exchange, equity and
commodities markets.
Interest rate risk is the current and
from movements in interest rates.
Foreign exchange risk refers to the risk
to earnings or capital arising from adverse
movements in foreign exchange rates.
Equity risk is the risk to earnings or
capital arising from movements in the value
of an institutions equity-related holdings.
Commodity risk is the risk to earnings
or capital due to adverse changes in the
value of an institutions commodity-related
holdings.
While there are generally four sources
of market risk, as defined herein, the focus
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of this Appendix is interest rate risk and

foreign exchange risk. Nevertheless, the
principles set forth in the market risk
management process and sound risk
management practices are generally
applicable to all sources of market risk.
a. Interest rate risk
Interest rate risk is the risk that changes
in market interest rates will reduce current
or future earnings and/or the economic value
of an FI. Accepting interest rate risk is a
normal part of financial intermediation and
is a major source of profitability and
shareholder value. Excessive or
inadequately understood and controlled
interest rate risk, however, can pose a
significant threat to an FIs earnings and
capital. Thus, an effective risk
management process that maintains interest
rate risk within prudent levels is essential
to the safety and soundness of FIs.
1. Sources of interest rate risk
a. Re-pricing risk
This is the most common type of
interest rate risk and arises from differences
in the maturity (for fixed-rate instruments)
and re-pricing (for floating-rate instruments)
of an FIs assets, liabilities and off-balance
sheet (OBS) positions. While such repricing mismatches are fundamental to the
business of financial intermediation, they
also expose an FIs earnings and
underlying economic value to changes
based on fluctuations in market interest
rates.
b. Basis risk
Basis risk arises from imperfect
correlations among the various interest
rates earned and paid on financial
instruments with otherwise similar repricing characteristics. A shift in the
relationship between these rates or
interest rates in different markets can give
rise to unexpected changes in the cash
flows and earnings spread between assets,
liabilities and OBS instruments of similar
maturities or re-pricing frequencies.
c. Yield curve risk

Yield curve risk is the risk that rates of
different maturities may change by a
different magnitude. It arises from variations
in the movement of interest rates across
the maturity spectrum of the same index
or market. Yield curves can steepen, flatten
or even invert. Unanticipated shifts of the
yield curve may have adverse effects on an
FIs earnings or underlying economic value.
d. Option risk
Option risk is the risk that the payment
patterns of assets and liabilities will change
when interest rates change. Formally, an
option gives the option holder the right, but
not the obligation to buy, sell, or in some
manner alter the cash flow of an instrument
or financial contract. Options may be standalone instruments or may be embedded
within otherwise standard instruments.
Examples of instruments with embedded
options include various types of bonds,
notes, loans or even deposits which give a
counterparty the right to prepay or even
extend the maturity of an instrument or to
change the rate paid. In some cases, the
holder of an option can force a counterparty
to pay additional notional, or to forfeit
notional already paid.
The option holders ability to choose to
alter cash flows creates an asymmetric
performance pattern. If not adequately
managed, the asymmetrical payoff
characteristics of instruments with
optionality can pose significant risk
particularly to those who sell the options,
since the options held, both explicit and
embedded, are generally exercised to the
advantage of the holder and the
disadvantage of the seller.
2. Measuring the effects of interest
rate risk.
Changes in interest rates affect both
earnings and the economic value of an FI.
This has given rise to two separate, but
complementary, perspectives for evaluating
an FIs exposure to interest rate risk.
APP. 73
06.12.31
Exposure to earnings typically receives

the most attention. Many FIs use a modified
interest rate gap or earnings simulation
model to forecast earnings over a running
next twelve (12) month time horizon under
a variety of interest rate scenarios. Given
that a large portion of a typical FIs liabilities
and even assets re-price in less than one (1)
year, there is value in such a system. For
example, earnings are a key measure in
determining if the board of directors is
creating value for the shareholders.
However, earnings over the next twelve
(12) months do not present a complete
picture of an FIs exposure to interest rate
risk. Many FIs hold assets such as bonds
and fixed rate loans with extended terms.
The full effect of changes in interest rates
on the value of these assets cannot be fully
captured by a short-term earnings model.
Thus, it is also important to consider a more
comprehensive picture of the FIs exposure
to interest rate risk through an assessment
of the FIs economic value.
The BSP will not consider market risk
to be well managed unless the FI has fully
implemented an effective risk measurement
system
whose
sophistication
is
commensurate with the nature and
complexity of the risk assumed. Smaller FIs
with non-complex single currency balance
sheets may be able to use a single noncomplex measurement methodology, such as
re-pricing gap analysis to manage their interest
rate risk. However, large commercial or
universal banks with complex, multi-currency
balance sheets, or FIs that accept large
exposures of interest rate risk relative to capital
will be expected to measure interest rate risk
through a combination of earnings simulation
and economic value. Trading activities should
continue to be managed through the use of
an effective, and independently validated
Value-at-Risk (VaR) methodology.
a. Earnings perspective
An FI should consider how changes in
interest rates may affect future earnings.
The focus of analysis under the earnings

perspective is the impact of changes in
interest rates on accrual or reported
earnings. Volatility in earnings should be
monitored and controlled because reduced
earnings or outright losses can threaten the
financial stability of an FI by undermining
its capital adequacy. Further, unexpected
volatility in earnings can undermine an FIs
reputation and result in an erosion of public
confidence.
Fluctuations in interest rates generally
have the greatest impact on reported
earnings through changes in net interest
income (i.e., the difference between total
interest income and total interest expense).
Thus, the BSP will expect FIs to adopt
systems that are capable of estimating
changes to net interest income under a
variety of interest rate scenarios. For
example, non-complex FIs with traditional
business lines and balance sheets could
potentially limit their simulations to a single
+100 basis point parallel rate shock.
However, FIs that hold significant levels
of derivatives and structured products
relative to capital should incorporate more
severe rate movements (e.g. +100, 200
and 300 basis points) to determine what
happens if strike prices are breached or
events are triggered. Further, the BSP will
expect an FI to employ alternative
scenarios such as changes to the shape of
the yield curve if the FI is exposed to
significant levels of yield curve or basis risk.
Changes in market interest rates may
also affect the volume of activities that
generate fee income and other non-interest
income. Thus, FIs should incorporate a
broader focus on overall net income
incorporating both interest and non-interest
income and expenses if the FI reports
significant levels of interest rate sensitive
non-interest income.
b. Economic value perspective
The economic value of an FI can be
viewed as the present value of an FIs
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06.12.31
expected net cash flows, defined as the

expected cash flows from assets minus the
expected cash flows from liabilities plus the
expected net cash flows on OBS positions.
As such, it provides a more
comprehensive view of the potential longterm effects of changes in interest rates than
is offered by the earnings perspective.
While a variety of models are available,
the BSP expects that economic value models
will incorporate all significant classes of
assets, liabilities and OBS. As with earnings
at risk, the FI should incorporate a variety
of interest rate scenarios to ensure that any
strike prices, caps, limits, or events are
breached in the simulation. Also, FIs with
significant levels of basis or yield curve risk
are expected to add scenarios such as
alternative correlations between interest
rates and/or a flatter or steeper yield curve.
Managing earnings and economic exposures
Management must make certain
tradeoffs when immunizing earnings and
economic value from interest rate risk. When
earnings are immunized, economic value
becomes more vulnerable, and vice versa.
The economic value of equity, like that of
other financial instruments, is a function of
the discounted net cash flows it is expected
to earn in the future. If an FI has immunized
earnings, such that expected earnings
remain constant for any change in interest
rates, the discounted value of those earnings
will be lower if interest rates rise. Hence,
its economic value will fluctuate with rate
changes. Conversely, if an FI fully immunizes
its economic value, its periodic earnings
must increase when rates rise and decline
when interest rates fall.
b. Foreign exchange risk
Foreign exchange risk (FX risk) is the risk
to earnings or capital arising from changes
in foreign exchange rates.
In contracting to meet clients foreign
currency needs or simply buying and
selling foreign exchange for its own

account, an FI undertakes a risk that
exchange rates might change subsequent
to the time the contract is consummated.
Foreign exchange risk may also arise from
maintaining an open foreign exchange (FX)
position. Thus, managing FX risk includes
monitoring an FIs net FX position.
An FI has a net position in a foreign
currency when its assets, including spot and
future contracts to purchase, and its
liabilities, including spot and future
contracts to sell, in that currency are not
equal. An excess of assets over liabilities is
called a net long position and liabilities in
excess of assets, a net short position.
It should be noted that when engaging
in FX activities, FIs are also exposed to
other risks including liquidity and credit
risks, particularly related to the settlement
of FX contracts. FIs should have an
integrated approach to risk management in
relation to its FX activities: FX risk should
be reviewed together with other risks to
determine the FIs overall risk profile.
Liquidity and settlement risks related to FX
activities are outside the scope of these
guidelines. Nevertheless, future guidelines
may be issued on these risk areas.
V. Sound market risk management practices
When assessing an FIs market risk
management system, the BSP expects an FI
to address the four (4) basic elements of a
sound risk management system:
1. Active and appropriate Board and
senior management oversight;
2. Adequate risk management policies
and procedures;
3. Appropriate risk measurement
and management information systems; and
4. Comprehensive internal controls
and independent audits.
The specific manner in which an FI
applies these elements in managing its
market risk will depend upon the
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06.12.31
complexity and nature of its activities, as

well as the level of market risk exposure
assumed. What constitutes adequate
market risk management practices can
therefore vary considerably. Regardless of
the systems used, the BSP will not consider
market risk to be well managed unless all
four of the above elements are deemed to
be at least satisfactory.
As with other risk factor categories,
banking groups (banks and subsidiaries/
affiliates) should monitor and manage market
risk exposures of the group on a consolidated
and comprehensive basis. At the same time,
however, FIs should fully recognize any legal
distinctions and possible obstacles to cash
flow movements among affiliates and adjust
their risk management practices accordingly.
While consolidation may provide a
comprehensive measure in respect of market
risk, it may also underestimate risk when
positions in one affiliate are used to offset
positions in another affiliate. This is because
a conventional accounting consolidation may
allow theoretical offsets between such
positions from which an FI may not in practice
be able to benefit because of legal or
operational constraints.
A. Active and appropriate board and
senior management oversight1
Effective board and senior
management oversight of an FIs market
risk activities is critical to a sound market
risk management process. It is important
that these individuals are aware of their
responsibilities with regard to market risk
management and how market risk fits
within the organizations overall risk
management framework.
Responsibilities of the board of directors
The board of directors has the ultimate
responsibility for understanding the
nature and the level of market risk taken

by the FI. In order to carry out its
responsibilities, the Board should:
1. Establish and guide the FIs
strategic direction and tolerance for market
risk. While it is not possible to provide a
comprehensive list of documents to
consider, the BSP should see a clear and
documented pattern whereby the Board
reviews, discusses and approves strategies
and policies with respect to market risk
management. In addition, there should be
evidence that the Board periodically
reviews and discusses the overall
objectives of the FI with respect to the
level of market risk acceptable to the FI.
2. Identify senior management who
has the authority and responsibility for
managing market risk and ensure that
senior management takes the necessary
steps to monitor and control market risk
consistent with the approved strategies
and policies. The BSP should be able to
discern a clear hierarchal structure with a
clear assignment of responsibility and
authority.
3. Monitor the FIs performance and
overall market risk profile, ensuring that
the level of market risk is maintained
within tolerance and at prudent levels
supported by adequate capital. The Board
should be regularly informed of the
market risk exposure of the FI and any
breaches to established limits for
appropriate action. Reporting should be
timely and clearly presented. In assessing
an FIs capital adequacy for market risk,
the Board should consider the FIs
current and potential market risk
exposure as well as other risks that may
impair the FIs capital, such as credit,
liquidity, operational, strategic, and
reputation risks.
1
This section refers to a management structure composed of a board of directors and senior management.
The BSP is aware that there may be differences in some financial institutions as regards the organizational
framework and functions of the board of directors and senior management. For instance, branches of foreign
banks have board of directors located outside of the Philippines and are overseeing multiple branches in various
countries. In this case, board-equivalent committees are appointed. Owing to these differences, the notions of
the board of directors and the senior management are used in these guidelines not to identify legal constructs but
rather to label two decision-making functions within a financial institution.
APP. 73
06.12.31
4. Ensure that the FI implements

sound fundamental principles that facilitate
the identification, measurement,
monitoring and control of market risk. The
board of directors should encourage
discussions among its members and senior
management as well as between senior
management and others in the FI
regarding the FIs market risk exposures
and management process.
5. Ensure that adequate resources,
both technical and human resources, are
devoted to market risk management.
While board members need not have
detailed technical knowledge of complex
financial instruments, legal issues or
sophisticated risk management techniques,
they have the responsibility to ensure that
the FI has personnel available who have
the necessary technical skills to evaluate
and control market risk. This responsibility
includes ensuring that there is continuous
training of personnel on market risk
management and providing competent
technical staff for the internal audit function.
Responsibilities of senior management
Senior management is responsible for
ensuring that market risk is adequately
managed for both long-term and day-today basis. In managing the FIs activities,
senior management should:
1. Develop and implement policies,
procedures and practices that translate the
boards goals, objectives and risk
tolerances into operating standards that are
well understood by personnel and that are
consistent with the boards intent. Senior
management should also periodically
review the organizations market risk
management policies and procedures to
ensure that they remain appropriate and
sound.
2. Ensure adherence to the lines of
authority and responsibility that the board
has established for measuring, managing,
and reporting market risk exposures.
3. Maintain appropriate limits structure,

adequate systems for measuring market risk,
and standards for measuring performance.
4. Oversee the implementation and
maintenance of management information
and other systems to identify, measure,
monitor, and control the FIs market risk.
5. Establish effective internal controls
over the market risk management process.
6. Ensure that adequate resources are
available for evaluating and controlling
market risk. Senior management of FIs,
including branches of foreign banks, should
ensure that analysis and market risk
management activities are conducted by
competent staff with technical knowledge
and experience consistent with the nature
and scope of the FIs activities. There should
be sufficient depth in staff resources to
manage these activities and to accommodate
the temporary absence of key personnel and
normal succession.
In evaluating the quality of oversight, the
BSP shall evaluate how the board and senior
management carry out the above functions/
responsibilities. Further, sound management
oversight is highly related to the quality of
other areas/elements of an FIs risk
management system. Thus, even if board and
senior management exhibit active oversight,
the FIs policies, procedures, measurement
and information systems, controls and audit
must be considered adequate before quality
of board and senior management can be
considered at least satisfactory.
Lines of responsibility and authority
FIs should clearly define the individuals
and/or committees responsible for managing
market risk and should ensure that there is
adequate separation of duties in key
elements of the risk management process to
avoid potential conflicts of interest.
Management should ensure that
sufficient safeguards exist to minimize the
potential that individuals initiating risk-taking
APP. 73
06.12.31
positions may inappropriately influence key

control functions of the market risk
management process. FIs should therefore
have risk measurement, monitoring, and
control functions with clearly defined
duties that are sufficiently independent
from position-taking functions of the FI and
which report risk exposures directly to the
board of directors.
The nature and scope of safeguards to
minimize potential conflicts of interest
should be in accordance with the size and
structure of an FI. Larger or more complex
FIs should have a designated independent
unit responsible for the design and
administration of the FIs market risk
measurement, monitoring and control
functions.
B. Adequate risk management policies
and procedures
An FIs market risk policies and
procedures should be clearly defined,
documented and duly approved by the board
of directors. Policies and procedures should
be consistent with the nature and complexity
of the FIs activities. When reviewing banking
groups, the BSP will assess whether
adequate and effective policies and
procedures have been adopted and
implemented across all levels of the
organization.
Policies and procedures should delineate
lines of responsibility and accountability and
should clearly define authorized
instruments, hedging strategies, positiontaking opportunities, and the market risk
models used to quantify market risk. Market
risk policies should also identify quantitative
parameters that define the acceptable level of
market risk for the FI. Where appropriate, limits
should be further specified for certain types of
instruments, portfolios, and activities. All
market risk policies should be reviewed
periodically and revised as needed.
Management should define the specific
procedures to be used for identifying,
reporting and approving exceptions to

policies, limits, and authorizations.
It is important that FIs identify market
risk, as well as other risks, inherent in new
products and activities and ensure these are
subject to adequate procedures and controls
before the new products and activities are
introduced or undertaken. Specifically, new
products and activities should undergo a
careful pre-acquisition review to ensure that
the FI understands their market risk
characteristics and can incorporate them into
its risk management process. Major hedging
or risk management initiatives should be
approved in advance by the board or its
appropriate delegated committee.
Proposals and the subsequent new
product/activity review should be formal and
written. For purposes of managing market risk
inherent in new products, proposals should,
at a minimum, contain the following features:
1. Description of the relevant product
or strategy;
2. Use/purpose of the new product/
activity;
3. Identification of the resources
required and unit/s responsible for
establishing sound and effective market risk
management of the product or activity;
4. Analysis of the reasonableness of the
proposed activities in relation to the FIs
overall financial condition and capital
levels; and
5. Procedures to be used to measure,
monitor, and control the risks of the
proposed product or activity.
C. Appropriate risk measurement
methodologies, limits structure, monitoring,
Market risk measurement models/
methodologies
It is essential that FIs have market risk
measurement systems that capture all
material sources of market risk and that
assess the effect of changes in market risk
APP. 73
06.12.31
factors in ways that are consistent with the

scope of their activities. Depending upon
the size, complexity, and nature of activities
that give rise to market risk, the ability to
capture all material sources of market risk
in a timely manner may require an FIs
market risk measurement system to be
interfaced with other systems, such as the
treasury system or loan system. The
assumptions underlying the measurement
system should be clearly understood by risk
managers and senior management.
Market risk measurement systems
should:
1. Assess all material market risk
associated with an FIs assets, liabilities, and
OBS positions;
2. Utilize generally accepted financial
concepts and risk measurement techniques; and
3. Have well-documented assumptions
and parameters.
There are a number of methods/
techniques for measuring market risks.
Complexity ranges from simple marking-tomarket or valuation techniques to more
advanced static simulations using current
holdings to highly sophisticated dynamic
modeling techniques that reflect potential
future business activities. In designing
market risk measurement systems, FIs should
ensure that the degree of detail regarding
the nature of their positions is commensurate
with the complexity and risk inherent in
those positions.
At a minimum, smaller non-complex FIs
should have the ability to mark-to-market
or revalue their investment portfolio and
construct a simple re-pricing gap. When
using gap analysis, the precision of interest
rate risk measurement depends in part on
the number of time bands into which
positions are aggregated. Clearly,
aggregation of positions/cash flows into
broad time bands implies some loss of
precision. In addition, the use of reasonable
and valid assumptions is important for a
measurement system to be precise. In
practice, the FI must assess the significance

of the potential loss of precision in
determining the extent of aggregation and
simplification to be built into the measurement
approach. Assumptions and limitations of the
measurement approach, such as the loss of
precision, should be documented.
On the other hand, banks holding an
expanded derivatives license and FIs
engaging in options or structured products
with embedded options cannot capture all
material sources of market risk by using static
models such as the re-pricing gap. These FIs
should have interest rate risk measurement
systems that assess the effects of rate changes
on both earnings and economic value. These
systems should provide meaningful
measures of an FIs current levels of interest
rate risk exposure, and should be capable
of identifying any excessive exposures that
might arise. Pricing models and simulation
techniques will probably be required.
There is also a question on the extent to
which market risk should be viewed on a
whole institution basis or whether the
trading book, which is marked to market,
and the accrual book, which is often not,
should be treated separately. As a general
rule, it is desirable for any measurement
system to incorporate market risk exposures
arising from the full scope of an FIs
activities, including both trading and nontrading sources. A single measurement
system can facilitate analysis of market risk
exposure. However, this does not preclude
different measurement systems and risk
management approaches being used for
similar or different activities. For example, a
bank with expanded derivatives license will
use pricing models as basic tools in valuing
position from its derivatives activities and
structured products. In addition, the bank
should use simulation models to assess the
potential effects of changes in market risk
factors by simulating the future path of
market risk factors and their impact on cash
flows from these activities.
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06.12.31
Different methodologies may also be

applied to the trading and accrual books.
Regardless of the number of models or
measurement systems used, management
should have an integrated view of market
risk across products and business lines.
Regardless of the measurement system
used, the BSP will expect the FI to ensure
that input data are timely and correct,
assumptions can be supported and are valid,
the methodologies used produce accurate
results, and the results can be easily
understood by senior management and the
board.
(1) Model input. All market risk
measurement methodologies require various
types of inputs, including hard data, readily
observable parameters such as asset prices,
and both quantitatively and qualitativelyderived assumptions. This applies equally
to simple gap as well as complex simulation
models.
The integrity and timeliness of data is a
key component of the market risk
measurement process. The BSP expects that
adequate controls will be established to
ensure that all material positions and cash
flows from on- and off- balance sheet
positions are incorporated into the
measurement system on a consistent and
timely basis. Inputs should be verified
through a process that validates data
integrity. Assumptions and inputs should be
subject to control and oversight review. Any
manual adjustments to underlying data
should be documented, and the nature and
reasons for the adjustments should also be
clearly understood.
Critical to model accuracy is the validity
of underlying assumptions. Assumptions
regarding maturity of deposits, for example,
are critical in measuring interest rate risk.
The treatment of positions where behavioral
maturity is different from contractual maturity
requires the use of assumptions and may
complicate the measurement of interest rate
risk exposure, particularly when using the
economic value approach. The validity of

correlation assumptions to aggregate market
risk exposures is likewise important as
breakdowns in correlations may significantly
affect the validity of model results. Key
assumptions should therefore be subject to
rigorous documentation and review. Any
significant changes should be approved in
advance by the board of directors.
(2) Model risk. While accuracy is key
to an effective market risk measurement
system, methodologies cannot be expected
to flawlessly predict potential losses arising
from market risk. The use of models
introduces the potential for model risk. Thus,
model risk is the risk of loss arising from
inaccurate or incorrect quantification of
market risk exposures due to weaknesses in
market risk methodologies. It may arise from
relying on assumptions that are inconsistent
with market realities, from employing input
parameters that are unreliable, or from
calibrating, applying and implementing
models incorrectly.
Model risk is more likely to arise for
instruments that have non-standard or
option-like features. The use of proprietary
models that employ unconventional
techniques that are not widely agreed upon
by market participants is likewise more
sensitive to model risk. Even the use of
standard models may lead to errors if the
financial tools are not appropriate for a given
instrument.
The BSP expects FIs to implement
effective policies and procedures to manage
model risk. The scope of policies and
procedures will depend upon the type and
complexity of models developed or
purchased. However, FIs holding an
expanded license or significant levels of
complex investments including structured
products, should at a minimum implement
the following controls:
a. Model development/acquisition,
implementation and revisions. The BSP
expects larger, complex FIs to adopt policies
APP. 73
06.12.31
governing development/acquisition,
implementation and revision of market risk
models. These policies should clearly
define the responsibilities of staff involved
in the development/acquisition process. FIs
should ensure that modeling techniques
and assumptions are consistent with widely
accepted financial theories and market
practices. Policies and procedures should
be duly approved by the board of directors
and properly documented. An inventory
of the models in use should be maintained
along with documentation explaining how
they operate.
The BSP also expects that revisions to
models will be performed in a controlled
environment by authorized personnel and
changes should be made or verified by a
control function. Written policies should
specify when changes to models are
acceptable and how those revisions should
be accomplished.
b. Model validation. Before models are
authorized for use, they should be validated
by individuals who are neither directly
involved in the development process nor
responsible for providing inputs to the model.
Independent model validation is a key
control in the model development process
and should be specifically addressed in an
FIs policies. Further, the BSP expects that
the staff validating the models will have
the necessary technical expertise.
A sound validation process should
rigorously and comprehensively evaluate
the sensitivity of the model to material
sources of model risk and includes the
following:
1. Tests of internal logic and
mathematical accuracy;
2. Development of empirical support
for the models assumptions;
3. Back-testing. The BSP expects FIs to
conduct backtesting of model results. Backtesting is a method of periodically evaluating
the accuracy and predictive capability of an
FIs market risk measurement system by
monitoring and comparing actual movements
in market prices or market risk factors with

projections produced by the model. To be
more effective, back-testing should be
conducted by parties independent of those
developing or using the model. Policies
should address the scope of the back-testing
process, frequency of back-testing,
documentation requirements, and
management responses. Complex models
should be back-tested continually while
simple models can be back-tested
periodically. Significant discrepancies should
prompt a model review.
4. Periodic review of methodologies
and assumptions. The BSP expects that FIs
will periodically review or reassess their
modeling methodologies and assumptions.
Again, the frequency of review will depend
on the model but complex models should
be reviewed at least once a year, when
changes are made, or when a new product
or activity is introduced. Model review
could also be prompted when there is a need
for the model to be updated to reflect
changes in the FI or market. The review
process should be performed by an
independent group as it is considered to be
part of the risk control and audit function.
The use of vendor models can present
special challenges, as vendors often claim
proprietary privilege to avoid disclosing
information about their models. Thus, FIs
may be constrained from performing
validation procedures related to internal
logic, mathematical accuracy and model
assumptions. However, vendors should
provide adequate information on how the
models were constructed and validated so
that FIs have reasonable assurances that the
model works as intended.
c. Stress testing. The underlying
statistical models used to measure market
risk summarize the exposures that reflect the
most probable market conditions. Regardless
of size and complexity of activities, the BSP
expects FIs to supplement their market risk
measurement models with stress tests. Stress
testing are simulations that show how a
APP. 73
06.12.31
portfolio or balance sheet might perform

during extreme events or highly volatile
markets.
Stress testing should be designed to
provide information on the kinds of
conditions under which the FIs strategies or
positions would be most vulnerable. Thus
stress tests must be tailored to the risk
characteristics of the FI. Possible stress
scenarios might include abrupt changes in
the general level of interest rates, changes
in the relationships among key market rates
(i.e., basis risk), changes in the slope and the
shape of the yield curve (i.e., yield curve risk),
changes in the liquidity of key financial
markets, or changes in the volatility of market
rates.
In addition, stress scenarios should
include conditions under which key
business assumptions and parameters break
down. The stress testing of assumptions
used for illiquid instruments and
instruments with uncertain contractual
maturities are particularly critical to
achieving an understanding of the FIs risk
profile. When conducting stress tests,
special consideration should be given to
instruments
or
markets
where
concentrations exist. FIs should consider
also worst case scenarios in addition to
more probable events.
Further, the BSP will expect FIs with
material market risk exposure, particularly
from derivatives and/or structured products
to supplement their stress testing with an
analysis of their exposure to
interconnection risk. While stress testing
typically considers the movement of a
single market factor (e.g., interest rates),
interconnection risk considers the linkages
across markets (e.g., interest rates and
foreign exchange rates) and across the
various categories of risk (e.g., credit, and
liquidity risk). For example, stress from one
market may transmit shocks to other markets
and give rise to otherwise dormant risks,
such as liquidity risk. Evaluating
interconnected risk involves assessing the

total or aggregate impact of singular events.
Guidelines for performing stress testing
should be detailed in the risk management
policy statement. Management and the
board of directors should periodically
review the design, major assumptions, and
the results of such stress tests to ensure that
appropriate contingency plans are in place.
(3) Model output. Reports should be
provided to senior management and the
board as a basis for making decisions.
Report content should be clear and
straightforward, indicating the purpose of
the model, significant limitations, the
quantitative level of risk estimated by the
simulation, a comparison to Board
approved limits and a qualitative discussion
regarding the appropriateness of the FIs
current exposures. Sophisticated
simulations should be used carefully so that
they do not become black boxes
producing numbers that have the
appearance of precision but may not be
very accurate when their specific
assumptions and parameters are revealed.
Market limits structure
The FIs board of directors should set
the institutions tolerance for market risk
and communicate that tolerance to senior
management. Based on these tolerances,
senior management should establish
appropriate risk limits, duly approved by
the Board, to maintain the FIs exposure
within the set tolerances over a range of
possible changes in market risk factors such
as interest rates.
Limits represent the FIs actual
willingness and ability to accept real losses.
In setting risk limits, the board and senior
management should consider the nature
of the FIs strategies and activities, past
performance, and management skills.
Most importantly, the board and senior
management should consider the level of
the FIs earnings and capital and ensure that
APP. 73
06.12.31
both are sufficient to absorb losses equal

to the proposed limits. Limits should be
approved by the board of directors.
Furthermore, limits should be flexible to
changes in conditions or risk tolerances and
should be reviewed periodically.
An FIs limits should be consistent with
its overall approach to measuring market risk.
At a minimum, FIs using simple gap should
establish limits on mismatches in each time
bucket on a stand-alone and cumulative
basis. In addition, limits should be adopted
to control potential losses in the investment
portfolio to a pre-set percentage of capital.
Larger, more complex FIs should
establish limits on the potential impact of
changes in market risk factors on reported
earnings or/and the FIs economic value
of equity. Market risk limits may include
limits on net and gross positions, volume
limits, stop-loss limits, value-at-risk limits,
re-pricing gap limits, earnings-at-risk limits
and other limits that capture either notional
or (un)expected loss exposures. In assigning
interest rate risk limits under the earnings
perspective, FIs should explore limits on the
variability of net income as well as net
interest income in order to fully assess the
contribution of non-interest income to the
interest rate risk exposure of the FI. Such
limits usually specify acceptable levels of
earnings volatility under specified interest
rate scenarios.
For example, interest rate risk limits may
be keyed to specific scenarios of movements
in market interest rates such as an increase
or decrease of a particular magnitude. The
rate movements used in developing these
limits should represent meaningful stress
situations taking into account historic rate
volatility and the time required for
management to address exposures. Limits
may also be based on measures derived from
the underlying statistical distribution of
interest rates, such as earnings at risk or
economic value-at-risk techniques.
Moreover, specified scenarios should take
account of the full range of possible sources

of interest rate risk to the FI including repricing, yield curve, basis, and option risks.
Simple scenarios using parallel shifts in
interest rates may be insufficient to identify
such risks. This is particularly important for
FIs with significant exposures to these
sources of market risk.
The form of limits for addressing the
effect of rates on an FIs economic value of
equity should be appropriate for the size and
complexity of its underlying positions. For
FIs engaged in traditional banking activities,
relatively simple limits may suffice.
However, for FIs with significant holdings
of long-term instruments, options,
instruments with embedded options, or
other structured instruments, more detailed
limit systems may be required.
Depending on the nature of an FIs
holdings and its general sophistication, limits
can also be identified for individual business
units, portfolios, instrument types, or specific
instruments. The level of detail of risk limits
should reflect the characteristics of the FIs
holdings including the various sources of
market risk the FI is exposed to.
The BSP also expects that the limits
system will ensure that positions that exceed
predetermined levels receive prompt
management attention. Limit exceptions
should be communicated to appropriate
senior management without delay. Policies
should include how senior management will
be informed and what action should be
taken by management in such cases.
Particularly important is whether limits are
absolute in the sense that they should never
be exceeded or whether, under specific
circumstances, breaches of limits can be
tolerated for a short period of time. The
circumstances leading to a tolerance of
breaches should be clearly described.
Market risk monitoring and reporting
An accurate, informative, and timely
management information system is
APP. 73
06.12.31
essential for managing market risk

exposures both to inform management and
to support compliance with board policy.
Reporting of risk measures should be done
regularly and should clearly compare current
exposure to policy limits. In addition, past
forecasts or risk estimates should be
compared with actual results to identify any
modeling shortcomings.
Reports detailing the market risk
exposure of the FI should be reviewed by
the board on a regular basis. While the types
of reports prepared for the board and for
various levels of management will vary based
on the FIs market risk profile, they should
at a minimum include the following:
1. Summaries of the FIs aggregate
exposures;
2. Reports demonstrating the FIs
compliance with policies and limits;
3. Summary of key assumptions, for
example, non-maturity deposit behavior,
prepayment information, and correlation
assumptions;
4. Results of stress tests, including
those assessing breakdowns in key
assumptions and parameters; and
5. Summaries of the findings of reviews
of market risk policies, procedures, and the
adequacy of the market risk measurement
systems, including any findings of internal and
external auditors and retained consultants.
D. Risk controls and audit
Adequate internal controls ensure the
integrity of an FIs market risk management
process. These internal controls should be
an integral part of the institutions overall
system of internal control and should
promote effective and efficient operations,
reliable financial and regulatory reporting,
and compliance with relevant laws,
regulations, and institutional policies. An
effective system of internal control for market
risk includes:
1. A strong control environment;
2. An adequate process for identifying
and evaluating risk;
3. The establishment of control

activities such as policies, procedures, and
methodologies;
4. Adequate information systems;
5. Continual review of adherence to
established policies and procedures; and
6. An effective internal audit and
independent validation process.
Policies and procedures should specify
the approval processes, exposure limits,
reconciliations, reviews, and other control
mechanisms designed to provide a
reasonable assurance that the institutions
market risk management objectives are
achieved. Many attributes of a sound risk
management process, including risk
measurement, monitoring, and control
functions, are actually key aspects of an
effective system of internal control. FIs
should ensure that all aspects of the
internal control system are effective,
including those aspects that are not directly
part of the risk management process.
An important element of an FIs
internal control system is regular
evaluation and review. The BSP expects
that FIs will establish a process to ensure
that its personnel are following
established policies and procedures, and
that its procedures are actually
accomplishing their intended objectives.
Such reviews and evaluations should also
address any significant change that may
impact the effectiveness of controls, and
that appropriate follow-up action was
implemented when limits were
breached. Management should ensure
that all such reviews and evaluations are
conducted regularly by individuals who
are independent of the function they are
assigned to review. When revisions or
enhancements to internal controls are
warranted, there should be a mechanism
in place to ensure that these are
implemented in a timely manner.
Independent reviews of the market risk
measurement system should also include
APP. 73
06.12.31
assessments of the assumptions,

parameters, and methodologies used. Such
reviews should seek to understand, test,
and document the current measurement
process, evaluate the systems accuracy,
and recommend solutions to any identified
weaknesses. If the measurement system
incorporates one or more subsidiary systems
or processes, the review should include
testing aimed at ensuring that the
subsidiary systems are well-integrated and
consistent with each other in all critical
respects. The results of this review, along
with any recommendations for
improvement, should be reported to
senior management and/or the board.
The BSP expects that FIs with complex
risk exposures should have their
measurement, monitoring, and control
functions reviewed on a regular basis by an
independent party (such as an internal or
external auditor). In such cases, reports written
by external auditors or other outside parties
should be available to the BSP. It is essential
that any independent reviewer ensures that
the FIs risk measurement system is sufficient
to capture all material elements of market risk,
whether arising from on- or off-balance-sheet
activities. Among the items that an audit
should review and validate are:
1. The appropriateness of the FIs risk
measurement system(s) given the nature,
scope, and complexity of its activities.
2. The accuracy and completeness of
the data inputs - This includes verifying that
balances and contractual terms are
correctly specified and that all major

instruments, portfolios, and business units
are captured in the model. The review
should also investigate whether data
extracts and model inputs have been
reconciled with transactions and general
ledger systems.1
3. The reasonableness and validity of
scenarios and assumptions This includes
a review of the appropriateness of the interest
rate scenarios as well as customer behaviors
and pricing/volume relationships to ensure
that these assumptions are reasonable and
internally consistent.2
4. The validity of the risk measurement
calculations - The scope and formality of the
measurement validation will depend on the
size and complexity of the FI. At large FIs,
internal and external auditors may have their
own models against which the FIs model
is tested. FIs with more complex risk profiles
and measurement systems should have the
model or calculations audited or validated
by an independent source. At smaller and
less complex FIs, periodic comparisons of
actual performance with forecasts may be
sufficient.3
The frequency and extent to which an
FI should re-evaluate its risk measurement
methodologies and models depend, in
part, on the particular market risk
exposures created by holdings and
activities, the pace and nature of market
rate changes, and the pace and complexity
of innovation with respect to measuring
and managing market risk.
It is acceptable for parts of the reconciliation to be automated; e.g., routines may be programmed to
investigate whether the balances being extracted from various transaction systems match the balances recorded
on the FIs general ledger. Similarly, the model itself often contains various audit checks to ensure, for example,
that maturing balances do not exceed original balances.
2
Key areas of review include the statistical methods that were used to generate scenarios and assumptions
(if applicable), and whether senior management reviewed and approved key assumptions. The review should
also compare actual pricing spreads and balance sheet behavior to model assumptions. For some instruments,
estimates of value changes can be compared with market value changes. Unfavorable results may lead the FI to
revise model relationships.
3
The validity of the model calculations is often tested by comparing actual with forecasted results. When
doing so, FIs can compare projected net income results with actual earnings. Reconciling the results of economic valuation systems can be more difficult because market prices for all instruments are not always readily
available, and the FI does not routinely mark all of its balance sheet to market. For instruments or portfolios with
market prices, these prices are often used to benchmark or check model assumptions.
1
APP. 73
06.12.31
VI. Capital adequacy

In addition to adequate risk
management systems and controls, capital
has an important role to play in mitigating
and supporting market risk. FIs must hold
capital commensurate with the level of
market risk they undertake. As part of
sound market risk management, FIs must
translate the level of market risk they
undertake whether as part of their trading
or non-trading activities, into their
overall evaluation of capital adequacy.
Where market risk is undertaken as part
of an FIs trading activities, existing
capital adequacy ratio requirements shall
prevail.
The BSP will periodically evaluate the
market risk measurement system for the
accrual book to determine if the FIs
capital is adequate to support its exposure
to market risk and whether the internal
measurement systems of the FI are adequate.
In performing this assessment, the BSP may
require information regarding the market
risk exposure of the FI, including re-pricing
gaps, earnings and economic value
simulation estimates, and the results of
stress tests. This information will typically
be found in internal management reports.
If an FIs internal measurement system
does not adequately capture the level of
market risk, the BSP may require an FI to
improve its system. In cases where an FI

accepts significant market risk in its accrual
book, the BSP expects that a portion of
capital will be allocated to cover this risk.
When performing these evaluations,
the BSP will determine if:
(a) All material market risk associated
with an institutions assets, liabilities, and
OBS positions in the accrual book are
captured by the risk management systems;
(b) Generally accepted financial
concepts and risk measurement
techniques are utilized. For larger,
complex FIs, internal systems must be
capable of measuring risk using both an
earnings and economic value approach.
(c) Data inputs are adequately
specified (commensurate with the nature
and complexity of an FIs holdings) with
regard to rates, maturities, re-pricing,
embedded options, and other details;
(d) The systems assumptions (used to
transform positions into cash flows) are
reasonable, properly documented, and stable
over time.1
(e) Market risk measurement systems
are integrated into the institutions daily risk
management practices. The output of the
systems should be used in characterizing the
level of market risk to senior management
and board of directors.
This is especially important for assets and liabilities whose behavior differs markedly from contractual
maturity or re-pricing, and for new products. Material changes to assumptions should be documented, justified,
and approved by management.
1
APP. 74
06.12.31
GUIDELINES ON LIQUIDITY RISK MANAGEMENT

I.
Background
The on-going viability of institutions,
particularly financial organizations, is
heavily influenced by their ability to
manage liquidity. Innovations in
investment and funding products, growth
in off-balance sheet activities and
continuous competition for consumer
funds have affected the way FI do business
and intensified the need for proactive
liquidity risk management. FIs need to
fully understand, measure and control the
resulting liquidity risk exposures.
II. Statement of Policy
For purposes of these guidelines, FI
include banks, NBFIs supervised by the
BSP and their financial subsidiaries. The
BSP recognizes the liquidity risk inherent
in FI activities and how these activities
expose an FI to multiple risks which may
increase liquidity risk.
The BSP will not restrict risk-taking
activities as long as FIs are authorized to
engage in such activities and:
1. Understand, measure, monitor
and control the risk they assume;
2. Adopt risk management practices
whose sophistication and effectiveness is
commensurate to the risk assumed; and
3. Maintain capital commensurate
with their risk exposures.
The principles set forth in these
guidelines shall be used to determine the
level and trend of liquidity risk exposure
and adequacy and effectiveness of an FIs
liquidity risk management process. In
evaluating the adequacy of an FIs liquidity
position, the BSP shall consider the FIs
current level and prospective sources of
liquidity as compared to its funding needs.
Further, the BSP will evaluate the
adequacy of funds management practices
relative to the FIs size, complexity, and

risk profile.
In general, liquidity risk management
practices should ensure that an institution is
able to maintain a level of liquidity sufficient
to meet its financial obligations in a timely
manner and to fulfill the legitimate funding
needs of its community. Practices should reflect
the ability of the institution to manage
unplanned changes in funding sources, as well
as react to changes in market conditions that
affect the ability to quickly liquidate assets with
minimal loss. In addition, funds-management
practices should ensure that liquidity is not
consistently maintained at a high cost, from
concentrated sources, or through undue
reliance on funding sources that may not be
available in times of financial stress or adverse
changes in market conditions.
In evaluating the above parameters, the
BSP shall consider the following factors:
1. The actual and potential level of
liquidity risk posed by the FIs products and
services, balance sheet structure and offbalance sheet activities;
2. The cost of an FIs access to money
markets and other alternative sources of
funding;
3. The diversification of funding
sources (on and off-balance sheet);
4. The adequacy and effectiveness of
board and senior management oversight,
particularly the Boards ability to recognize
the effects of interrelated risk areas, such as
market and reputation risks, to liquidity risk;
5. The reasonableness of liquidity risk
limits and controls in relation to earnings,
as affected by the cost of access to money
funding, and capital;
6. The adequacy of measurement
methodologies,
monitoring
and
management information systems;
APP. 74
06.12.31
7. The adequacy of foreign currency

liquidity management;
8. The
appropriateness
and
reasonableness of contingency plans for
handling liquidity crises;
9. The adequacy of internal controls and
audit of liquidity risk management process.
The sophistication of liquidity risk
management shall depend on the size, nature
and complexity of an FIs activities. However,
in all instances, FIs are expected to measure
their liquidity position on an ongoing basis,
analyze net funding requirements under
alternative scenarios, diversify funding sources
and adopt contingency funding plans.
An FIs liquidity risk management
system shall be assessed under the FIs
general risk management framework,
consistent with the guidelines on supervision
by risk as set forth under Appendix 72. If an
FIs risk exposures are deemed excessive
relative to the FIs capital, or that the risk
assumed is not well managed, the BSP will
direct the FI to reduce its exposure and/or
strengthen its risk management system.
III. Liquidity Risk Management Process
Liquidity risk management process
should be tailored to an FIs structure and
scope of operations and application can vary
across institutions. Regardless of the
structure, an FIs liquidity risk management
process should be consistent with its general
risk management framework and should be
commensurate with the level of risk
assumed. At a minimum, the process should:
1. Identify liquidity risk. Proper
identification of liquidity risk requires that
management understand both existing risk
and prospective risks from new products and
activities. It involves determining the volume
and trends of liquidity needs and the sources
of liquidity available to meet these needs.
Identifying liquidity risk necessitates
expressing the FIs desired level of risk
exposure based on its ability and willingness
to assume risk which may primarily depend
on the FIs capital base and access to funds

providers. Liquidity risk identification should
be a continuing process and should occur at
both the transaction, portfolio and entity level.
2. Measure liquidity risk. Adequate
measurement systems enable FIs to quantify
liquidity risk exposures on a per entity basis
and across the consolidated organization.
A relatively large organization with extensive
scope of operations would generally require
a more robust management information
system to properly measure risk in a timely
and comprehensive manner.
3. Control liquidity risk. The FI should
establish policies and standards on acceptable
product types, activities, counterparties and
set risk limits on a transactional, portfolio and
aggregate/consolidated basis to control
liquidity risk. In setting limits, the FI should
recognize any legal distinctions and possible
obstacles to cash flow movements among
affiliates or across separate books. Lines of
authority and accountability should be clearly
defined to ensure liquidity risk exposures
remain reasonable and within the risk
tolerance expressed by the board.
4. Monitor liquidity risk. Monitoring
liquidity risk requires timely review of liquidity
risk positions and exceptions, including dayto-day liquidity management. Monitoring
reports should be frequent, timely, and
accurate and should be distributed to
appropriate levels of management.
IV. Definition of Liquidity Risk
Liquidity risk is generally defined as
the current and prospective risk to earnings
or capital arising from an FIs inability to
meet its obligations when they come due
without incurring unacceptable losses or
costs. Liquidity risk includes the inability
to manage unplanned decreases or
changes in funding sources. Liquidity risk
also arises from the failure to recognize or
address changes in market conditions that
affect the ability to liquidate assets quickly
and with minimal loss in value.
APP. 74
06.12.31
In terms of capital markets and trading

activities, FIs face two (2) types of liquidity
risk: funding liquidity risk and market
liquidity risk. Funding liquidity risk refers
to the inability to meet investment and
funding requirements arising from cash
flow mismatches without incurring
unacceptable losses or costs. This is
synonymous with the general definition of
liquidity risk.
Market liquidity risk, on the other hand,
refers to the risk that an institution cannot easily
eliminate or offset a particular position
because of inadequate liquidity in the market.
The size of the bid/ask spread of instruments
in a market provides a general indication of
its depth, hence its liquidity, under normal
circumstances. Market liquidity risk is also
associated with the probability that large
transactions may have a significant effect on
market prices in markets that lack sufficient
depth. In addition, market liquidity risk is
associated with structured or complex
investments as the market of potential buyers
is typically small. Finally, FIs are exposed to
the risk of an unexpected and sudden erosion
of market liquidity. This could be the result of
sharp price movement or jump in volatility,
or internal to the FI such as that posed by a
general loss of market confidence.
Understanding market liquidity risk is
particularly important for institutions with
significant holdings of instruments traded in
financial markets.
Market and liquidity risks are highly
interrelated, particularly during times of
uncertainty when there is a high correlation
between the need for liquidity and market
volatility. Likewise, an FIs exposure to other
risks such as reputation, strategic, and credit
risks, can likewise significantly affect an
institutions liquidity risk. It is therefore
important that an FIs liquidity risk
1
management system is consistent with its

general risk management framework.
V. Sound Liquidity Risk Management
Practices
When assessing an FIs liquidity risk
management system, the BSP shall consider
how an FI address the four basic elements
of a sound risk management system:
1. Active and appropriate board and
senior management oversight;
2. Adequate risk management policies
and procedures;
3. Appropriate risk measurement
and management information system; and
4. Comprehensive internal controls
and independent audits
Evaluation of the adequacy of the FIs
application of the above elements will be
relative to the FIs risk profile. FIs with less
complex operations may generally use
more basic practices while larger, and/or
more complex institutions will be
expected to adopt more formal and
sophisticated practices. Large organizations
should likewise take a comprehensive
perspective to measuring and controlling
liquidity risk by understanding how
subsidiaries and affiliates can raise or lower
the consolidated risk profile.
A. Active and appropriate Board and
senior management oversight1
Effective liquidity risk management
requires that the Board and senior
management be fully informed of the level
of liquidity risk assumed by the FI and
ensure that the activities undertaken are
within the prescribed risk tolerance. Senior
management should have a thorough
understanding of how other risks such as
credit, market, operational and reputation
risks impact the FIs overall liquidity strategy.1
This section refers to a management structure composed of a board of directors and senior management. The BSP is
aware that there may be differences in some financial institutions as regards the organizational framework and functions
of the board of directors and senior management. For instance, branches of foreign banks have board of directors located
outside of the Philippines and are overseeing multiple branches in various countries. In this case, board-equivalent
committees are appointed. Owing to these differences, the notions of the board of directors and the senior management
are used in these guidelines not to identify legal constructs but rather to label two decision-making functions within a
APP. 74
06.12.31
Responsibilities of the board of directors

The Board has the ultimate responsibility
for understanding the nature and level of
liquidity risk assumed by the FI and the
processes used to manage it.
The board of directors should:
1. Establish and guide the FIs strategic
direction and tolerance for liquidity risk by
adopting a formal written liquidity/funding
policy that specifies quantitative and
qualitative targets;
2. Approve policies that govern or
influence the FIs liquidity risk, including
reasonable risk limits and clear guidelines
which are adequately documented and
communicated to all concerned;
3. Identify the senior management staff
who has the authority and responsibility for
managing liquidity risk and ensure that this
staff takes the necessary steps to monitor and
control liquidity risk;
4. Monitor the FIs performance and
overall liquidity risk profile in a timely
manner by requiring frequent reports that
outline the liquidity position of the FI along
with information sufficient to determine if
the FI is complying with established risk
limits;
5. Mandate
and
track
the
implementation of corrective action in
instances of breaches in policies and
procedures;
6. Establish, review and to the extent
possible, test contingency plans for dealing
with potential temporary and long-term
liquidity disruptions; and
7. Ensure that the FI has sufficient
competent personnel, including internal
audit staff, and adequate measurement
systems to effectively manage liquidity risk.
Responsibilities of senior management
Senior management is responsible for
effectively executing the liquidity strategy
and overseeing the daily and long-term
management of liquidity risk. In managing
the FIs activities, senior management should:
1. Develop and implement procedures

and practices that translate the Boards goals,
objectives, and risk tolerances into
operating standards that are transmitted
to and well understood by personnel.
Operating standards should be consistent
with the Boards intent;
2. Plan for adequate sources of liquidity
to meet current and potential funding needs
and establish guidelines for the development
of contingency funding plans;
3. Adhere to the lines of authority and
responsibility that the Board has established
for managing liquidity risk;
4. Oversee the implementation and
maintenance of management information and
other systems that identify, measure, monitor,
and control the FIs liquidity risk; and
5. Establish effective internal controls
over the liquidity risk management process.
In evaluating the quality of oversight
provided by the Board and senior
management, the BSP will evaluate how the
Board and senior management carry out the
above functions/responsibilities. Further,
sound management practices are highly
related to the quality of other areas/elements
of risk management system. Thus, even if
Board and senior management exhibit active
oversight, the FIs policies, procedures,
measurement methodologies, limits
structure, monitoring and information
systems, controls and audit should be
adequate before quality of Board and senior
management can be considered
satisfactory.
Lines of Responsibility and Authority
Management of liquidity risk generally
requires collaboration from various business
areas of the FI, thus a clear delineation of
responsibilities is necessary. The
management structure should clearly define
the duties of senior level committees,
members of which have authority over the
units responsible for executing liquidityrelated transactions. There should be a clear
APP. 74
06.12.31
delegation of day-to-day operating

responsibilities to particular departments
such as the Treasury Department.
To ensure proper management of
liquidity risk, the FI should designate an
independent unit responsible for
measuring, monitoring and controlling
liquidity risk. Said unit should take a
comprehensive approach and directly
report to the board of directors or a
committee thereof.
B. Adequate risk management policies and
procedures
An FIs liquidity risk policies and
procedures should be comprehensive,
clearly defined, documented and duly
approved by the board of directors. Policies
and procedures should cover the FIs
liquidity risk management system in order
to provide appropriate guidance to
management. These policies should be
applied on a consolidated basis and, as
appropriate, at the level of individual
affiliates, especially when recognizing legal
movements among affiliates.
Liquidity risk policies should identify the
quantitative parameters used by the FI to
define the acceptable level of liquidity risk
such as risk limits and financial ratios as well
as describe the measurement tools and
assumptions used. Qualitative guidelines
should include description of the FIs
acceptable products and activities, including
off-balance sheet transactions, desired
composition of assets and liabilities, and
approach towards managing liquidity in
different currencies, geographies and across
subsidiaries and affiliates. Where
appropriate, a large FI should apply these
policies on a consolidated basis to address
risk exposures resulting from interconnected funding structures and operations
among members of an FIs corporate group.
It is essential that policies include the
development of a formal liquidity risk
measurement system that addresses businessas-usual scenarios and a contingency funding

plan that addresses a variety of stress scenarios.
FIs should likewise have specific procedures
for addressing breaches in policies and
implementation of corrective actions.
Management should periodically review
its liquidity risk policies and ensure that these
remain consistent with the level and
complexity of the FIs operations. Policies
should be updated to incorporate effects of
new products/activities, changes in
corporate structure and in light of its liquidity
experience.
C. Appropriate risk measurement
methodologies, limits structure, monitoring,
Liquidity risk measurement models/
methodologies
An FI should have a measurement
system in place capable of quantifying and
capturing the main sources of liquidity risk
in a timely and comprehensive manner.
Liquidity management requires ongoing
measurement, from intra-day liquidity to
long-term liquidity positions. Depending on
its risk profile, an FI can use techniques of
simple calculations, static simulations based
on current holdings or sophisticated models.
What is essential is that the FI should be able
to identify and avoid potential funding
shortfalls such that the FI can consistently meet
investment, funding and/or strategic targets.
FIs with simple operations can generally
use a static approach to liquidity
management. Static models are based on
positions at a given point in time. While an
exact definition of simple operations will
not be provided, the BSP expects that banks
using a static approach to liquidity
management would limit their operations to
core banking activities such as accepting
plain vanilla deposits and making traditional
loans. Such banks would not have active
Treasury Departments, would not hold or
APP. 74
06.12.31
offer structured products and would not be

exposed to significant levels of FX risk.
Board reporting could be less frequent than
in more complex banks but in no event
should be less than quarterly.
Complex FIs, on the other hand, will be
expected to adopt more robust approaches
such as a dynamic maturity/liquidity gap
reporting or even simulation modeling. At a
minimum, universal banks should use
maximum cash outflow/liquidity or maturity
gap models. FIs engaged in holding or
offering significant levels of structured
products and/or derivatives will be expected
to have the capability to model the cash
flows from these instruments under a variety
of scenarios. Specifically, scenarios should
be designed to measure the effects of a
breach of the triggers (strike price) on these
instruments.
Where the FIs organizational structure
and business practices indicate cash flow
movements and liquidity support among
corporate group members, the FI should
adopt consolidated risk measurement tools
to help management assess the groups
liquidity risk exposure. Depending on the
degree of inter-related funding, non-complex
measurement and monitoring systems may
be acceptable. However, large, complex FIs
that display a high degree of inter-related and
inter-dependent funding will be expected to
utilize more sophisticated monitoring and
management systems. These systems should
enable the Board of the consolidated entity
to simulate and anticipate the funding needs
of the FIs on both a consolidated basis and
in each of its component parts.
Liquidity
risk
measurement
methodologies/models should be
documented and approved by the board and
should be periodically independently
reviewed for reasonableness and tested for
accuracy and data integrity. Assumptions
used in managing liquidity should be
periodically revisited to ensure that these
remain valid.
Liquidity models require projecting all

relevant cash flows. As such, FIs engaged
in complex activities should have the
capability to model the behavior of all assets,
liabilities, and off-balance sheet items both
under normal/business-as usual and a variety
of stressed conditions. Stressed conditions
may include liquidity crisis confined
within the institution, or a systemic
liquidity crisis, in which all FIs are
affected. For FIs operating in a global
environment, cash flow projections should
reflect various foreign-currency funding
requirements.
When projecting cash flows,
management should also estimate customer
behavior in addition to contractual
maturities. Many cash flows are uncertain
and may not necessarily follow contractual
maturities. Cash flows may be influenced
by interest rates and customer behavior, or
may simply follow a seasonal or cyclical
pattern. When modeling liquidity risk, it is
important that assumptions be documented.
Assumptions should be reasonable and
should be based on past experiences or with
consideration of the potential impact of
changes in business strategies and market
conditions. Measurement tools should
include a sufficient number of time bands
to enable effective monitoring of both shortand long-term exposures. This expectation
applies not only to complex simulation
modeling, but to the construction of simple
liquidity GAP models as well.
To sufficiently measure an FIs liquidity
risk, management should analyze how its
liquidity position is affected by changes in
internal (company-specific) and external
(market-related) conditions. Management
will need to assess how a shift from a normal
scenario to various levels of liquidity crisis
can affect its ability to source external funds
and at what cost, liquidate certain assets at
expected prices within expected timeframes,
or hasten the need to settle obligations (e.g.,
limited ability to roll-over deposits).
APP. 74
06.12.31
Management should, at a minimum,

consider stress scenarios where securities
are sold at prices lower than anticipated and
credit lines are partially or wholly cancelled.
Regardless of the liquidity risk models
used, an FI should adopt an appropriate
contingency plan for handling liquidity
crisis. Well before a liquidity crisis occurs,
management should carefully plan how to
handle administrative matters in a crisis.
Management credibility, which is essential
to maintaining the publics confidence and
access to funding, can be gained or lost
depending on how well or poorly some
administrative matters are handled. A
contingency funding/liquidity plan ensures
that an FI is ready to respond to liquidity crisis.
The sophistication of a contingency plan
should be commensurate with the FIs
complexity and risk exposure, activities,
products and organizational structure. The
plan should identify the types of events that
will trigger the contingency plan, quantify
potential funding needs and sources and
provide the specific administrative policies and
procedures to be followed in a liquidity crisis.
Specifically, the contingency plan
should:
1. Clearly identify, quantify and rank
all sources of funding by preference
including, but not limited to:
Reducing assets
Modifying the liability structure or
increasing liabilities
Using off-balance-sheet sources,
such as securitizations
Using other alternatives for
controlling balance sheet changes
2. Consider asset and liability
strategies for responding to liquidity crisis
including, but not limited to:
Whether to liquidate surplus money
market assets
When (if at all) HTM securities might
be liquidated
Whether to sell liquid securities in
the repo markets
When to sell longer-term assets,

fixed assets, or certain lines of business
Coordinating lead bank funding
with that of the FIs other banks and nonbank affiliates
Developing strategies on how to
interact with non-traditional funding sources
(e.g., whom to contact, what type of
information and how much detail should be
provided, who will be available for further
questions, and how to ensure that
communications are consistent)
3. Address administrative policies and
procedures that should be used during a
liquidity crisis:
The responsibilities of senior
management during a funding crisis
Names, addresses, and telephone
numbers of members of the crisis team
Where, geographically, team
members will be assigned
Who will be assigned responsibility
to initiate external contacts with regulators,
analysts, investors, external auditors, press,
significant customers, and others
How internal communications will
flow between management, ALCO,
investment portfolio managers, traders,
employees, and others
How to ensure that the ALCO
receives management reports that are
pertinent and timely enough to allow
members to understand the severity of the
FIs circumstances and to implement
appropriate responses.
The above outline of the scope of a
good contingency plan is by no means
exhaustive. FIs should devote significant
time and consideration to scenarios that
are most likely, given their activities.
Regardless of the strategies employed, an
FI should consider the effects of such
strategies on long-term liquidity positions
and take appropriate actions to ensure that
level of risk exposures shall remain or be
brought down within the risk tolerance of
the Board.
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06.12.31
Limits structure
The Board and senior management
should establish limits on the nature and
amount of liquidity risk they are willing to
assume. In setting limits, management
should consider the nature of the FIs
strategies and activities, its past
performance, the level of earnings and
capital available to absorb potential losses
and costs of an FIs access to money
funding.
Limits can take various forms. FIs
should address limits on types of funding
sources and uses of funds, including offbalance sheet positions. In addition,
policies should set targets for minimum
holdings of liquid assets relative to
liabilities. Complex FIs, or FIs engaged in
complex activities should set maximum
cumulative cash-flow mismatches over
particular time horizons and establish
counterparty limits. Such limits should be
applied to all currencies to which the FI
has a significant exposure. In particular, FIs
should take into consideration any legal
flow movements between the RBU and
the FCDU.
When evaluating a banks liquidity
position, the BSP will consider low levels
of liquid assets relative to liabilities, and
significant negative funding gaps to be
indicative of high liquidity risk exposure.
Further, negative cash-flow mismatches in
the short term time buckets will receive
heightened scrutiny by the BSP and should
also receive the attention of senior
management and the board of directors.
Before accepting negative funding
gaps, or setting limits that allow negative
funding gaps, the board and senior
management should consider the FIs
ability to fund these negative gaps. Factors
include, but are not limited to: the
availability of on-balance sheet liquidity,
the amount of firm credit lines available
from commercial sources that can be

drawn to fund the shortfall, and the amount
of unencumbered on-balance sheet assets
that can be sold without excessive loss and
in a reasonable time-frame.
Further, actual positions and limits
should reflect the outcome of possible
stress scenarios caused by internal and
external factors, particularly those related
to reputation risk. Stress scenarios should
consider the possibility that securities may
be sold at a greater discount and/or may
take more time to sell than expected or
that credit lines and other off-balance sheet
sources of funding may be cancelled or
may be unavailable at reasonable cost.
Management should define specific
procedures for the prompt reporting and
documentation of limit exceptions and the
management approval and action required
in such cases.
Liquidity risk monitoring and reporting
An adequate management information
system is critical in the risk monitoring
process. The system should be able to
provide the Board, senior management
and other personnel with timely
information on the FIs liquidity position
in all the major currencies it deals in, on
an individual and aggregate basis, and for
various time periods.
Effective liquidity risk monitoring
requires frequent routine liquidity reviews
and more in-depth and comprehensive
reviews on a periodic basis. In general,
monitoring should include sufficient
information and a clear presentation such
that the reader can determine the FIs
ongoing degree of compliance with risk
limits. For example, reports should address
funding concentrations, funding costs,
projected funding needs and available
funding sources.
Monitoring and board reporting should
be robust. It is not unreasonable to expect
complex FIs or FIs engaged in complex
APP. 74
06.12.31
activities to monitor liquidity on a daily

basis. Board reporting should be no less
frequent than monthly. However, the BSP
would expect Board-level committees or
sub-committees to receive more frequent
reporting.
Comprehensive and accurate internal
reports analyzing an FIs liquidity risk should
be regularly prepared and reviewed by
senior management and submitted to the
board of directors.
D. Risk controls and audit
An FI should have adequate internal
controls in place to protect the integrity of
its liquidity risk management process.
Fundamental to the internal control system
is for the Board to prescribe independent
reviews to evaluate the effectiveness of
the risk management system and check
compliance with established limits,
policies and procedures.
An effective system of internal controls
for liquidity risk includes:
1. A strong internal control
environment;
2. An adequate process for identifying
and evaluating liquidity risk;
3. Adequate information systems; and
4. Continual review of adherence to
established policies and procedures.
To ensure that risk management
objectives are achieved, management needs
to focus on the following areas: appropriate
approval processes, limits monitoring,
periodic reporting, segregation of duties,
restricted access to information systems and
the regular evaluation and review by
independent competent personnel.
Internal audit reviews should cover all

aspects of the liquidity risk management
process, including determining the
appropriateness of the risk management
system, accuracy and completeness of
measurement models, reasonableness of
assumptions
and
stress
testing
methodology. Audit staff should have the
skills commensurate with the sophistication
of the FIs risk management systems. Audit
results should be promptly reported to the
board. Deficiencies should be addressed
in a timely manner and monitored until
resolved/corrected.
E. Foreign currency liquidity management
The principles described in this
Appendix also apply to the management
of any foreign currency to which the FI
maintains a significant exposure.
Specifically, management should ensure
that its measurement, monitoring and
control systems account for these
exposures as well. Management needs to
set and regularly review limits on the size
of its cash flow mismatches for each
significant individual currency and in
aggregate over appropriate time horizons.
In addition, an FI should consider effects
of other risk areas, particularly settlement
risks from its off-balance sheet activities.
An FI should also conservatively assess its
access to foreign exchange markets when
setting up its risk limits. As with overall
liquidity risk management, foreign
currency liquidity should be analyzed
under various scenarios, including stressful
conditions.
APP. 75
06.12.31
GUIDELINES ON TECHNOLOGY RISK MANAGEMENT

I.
Background
Banks using technology-related products,
services, delivery channels, and processes can
be exposed to all types of risks enumerated
under the BSP risk supervision framework
more particularly operational, strategic,
reputation, and compliance risk. With banks
increased reliance on technology, it is
important for the banks to understand how
specific technologies operate and how their
use or failure may expose banks to risk. The
BSP expects banks to have the knowledge and
skills necessary to understand and effectively
manage their technology-related risks. The BSP
will evaluate technology-related risks in terms
of the categories of risks identified in its risk
assessment system.
II. Description of technology related risks
Operational risk - This is the risk to
earnings or capital arising from problems
with service or product delivery. This risk is
a function of internal controls, information
systems, employee integrity, and operating
processes. Operational risk exists in all
products and services.
Technology can give rise to operational
risk in many ways. Operational risk often
results from deficiencies in system design,
implementation, or ongoing maintenance of
systems or equipment. For example,
incompatible internal and external systems
and incompatible equipment and software
expose a bank to operational risk.
Operational risk can increase when a bank
hires outside contractors to design products,
services, delivery channels, and processes
that do not fit with the banks systems or
customer demands. Similarly, when a bank
uses vendors to perform core bank functions,
such as loan underwriting and credit
scoring, and does not have adequate
controls in place to monitor the activities of
those vendors, operational risk may increase.

Also, when banks merge with other banks
or acquire new businesses, the banks
combined computer systems may produce
inaccurate or incomplete information or
otherwise fail to work properly. The failure
to establish adequate security measures,
contingency plans, testing, and auditing
standards also increases operational risk.
Strategic risk - This is the risk to earnings
or capital arising from adverse business
decisions or improper implementation of
those decisions. This risk is a function of the
compatibility of an organizations strategic
goals, the business strategies developed to
achieve those goals, the resources deployed
against these goals, and the quality of
implementation. The resources needed to
carry out business strategies are both tangible
and intangible. They include communication
channels, operating systems, delivery
networks, and managerial capacities and
capabilities.
Use of technology can create strategic risk
when management does not adequately plan
for, manage, and monitor the performance of
technology-related products, services,
processes, and delivery channels. Strategic risk
may arise if management fails to understand,
support, or use technology that is essential for
the bank to compete or if it depends on a
technology that is not reliable. In seeking ways
to control strategic risk, a bank should consider
its overall business environment, including:
the knowledge and skills of senior
management and technical staff; its existing
and planned resources; its ability to
understand and support its technologies; the
activities and plans of suppliers of technology
and their ability to support the technology;
and the anticipated life cycle of technologyrelated products and services.
APP. 75
06.12.31
Reputation risk - This is the risk to

earnings or capital arising from negative
public opinion. This affects the institutions
ability to establish new relationships or
services, or to continue servicing existing
relationships. This risk can expose the
institution to litigation, financial loss, or
damage to its reputation. Reputation risk
exposure is present throughout the
organization and that is why banks have the
responsibility to exercise an abundance of
caution in dealing with its customers and
community. This risk is present in activities
such as asset management and regulatory
compliance.
Reputation risk arises whenever
technology-based banking products,
services, delivery channels, or processes may
generate adverse public opinion such that it
seriously affects a banks earnings or impairs
capital. Examples may include: flawed
security systems that significantly
compromise customer privacy; inadequate
contingency and business resumption plans
that affect a banks ability to maintain or
resume operations and to provide customer
services following system failures; fraud that
fundamentally undermines public trust; and
large-scale litigation that exposes a bank to
significant liability and results in severe
damage to a banks reputation. Adverse
public opinion may create a lasting, negative
public image of overall bank operations and
thus impair a banks ability to establish and
maintain customer and business relationships.
Compliance risk - This is the risk to
earnings or capital arising from violations
of, or nonconformance with laws, rules,
regulations, prescribed practices, or ethical
standards. Compliance risk also arises in
situations where the laws or rules governing
certain bank products or activities of the
banks clients may be ambiguous or
untested. Compliance risk exposes the
institution to fines, civil money penalties,
payment of damages, and the voiding of
contracts. Compliance risk can lead to a
diminished reputation, reduced franchise

value, limited business opportunities,
lessened expansion potential, and the lack
of contract enforceability.
Compliance risk may arise in many
different ways. For example, it may arise
when a bank fails to comply with applicable
disclosure requirements or when it discloses
information to outside party that it is required
to keep confidential. Compliance risk also
may arise when a bank does not have
systems in place to ensure compliance with
mandatory reporting statutes. The use of
technology to automate lending decisions
also could expose a bank to compliance
risks if the programs are not properly tested
or if the quality of the data is not verified.
For example, the use of credit scoring models
to automate lending decisions could expose
a bank to compliance risk if the data upon
which the program rely are flawed or if the
program design itself is flawed.
As banks move increasingly from
paper to electronic-based transactions and
information exchanges, they need to
consider how laws designed for paperbased transactions apply to electronic-based
transaction and information exchanges.
Some new technologies raise unexpected
compliance issues. Transactions conducted
through the internet also can raise novel
questions regarding jurisdictional authority
over those transactions. Therefore, banks
should be careful to monitor and respond
to changes to relevant laws and regulations
arising from these developments.
III. Technology risk management process
The technology risk management
process is designed to help the bank to
identify, measure, monitor, and control its
risk exposure. The process involves three
(3) essential elements, namely:
1. Planning
2. Implementing
3. Measuring and monitoring
performance
APP. 75
06.12.31
It is the responsibility of banks board

of directors and a senior management
committee to ensure that an effective
planning process exists, that technology is
implemented properly with appropriate
controls, and that measurement and
monitoring efforts effectively identify ways
to manage risk exposure. The process should
be more complex for larger institutions,
particularly for those with major technologyrelated initiatives.
For each IT project, the bank should
adopt specific milestones and corresponding
timelines up to the full implementation of
the IT project.
A. Planning
Technology planning often involves
strategic, business, and project planning;
Strategic plan establishes the overall
role of technology as it relates to the banks
mission and assesses the type of technology
that a bank needs to fulfill that role;
Business plan integrates the new
technology into existing lines of business
and determines the level of technology best
suited to meet the needs of particular
business lines;
Project plan establishes resource
needs, time lines, benchmarks, and other
information necessary to convert the
business plan into operation.
The review and planning cycle may vary
depending on the type of institution and its
uses of different types of technologies.
Proper planning minimizes the likelihood
of computer hardware and software systems
incompatibilities and failures, and
maximizes the likelihood that a banks
technology is flexible enough to adapt to
future needs of the bank and its customers.
Because technology is constantly
changing, bank management should
periodically assess its uses of technology as
part of its overall business planning. Such
an enterprise-wide and ongoing approach
helps to ensure that all major technology
projects are consistent with the banks

overall strategic goals. Planning should
consider issues such as:
Cost of designing, developing,
testing and operating the systems whether
internally or externally;
Ability to resume operations swiftly
and with all data intact in the event of
system failure or unauthorized intrusions;
Adequacy of internal controls,
including controls for third party providers;
and
Ability to determine when a specific
risk exposure exceeds the ability of an
institution to manage and control that risk.
In cases when specialized expertise is
needed to design, implement, and service
new technologies, vendors may provide a
valuable means to acquire expertise and
resources that a bank cannot provide on its
own. However, in planning on whether and
how to contract for its technology needs, a
bank should assess how it will manage the
risks associated with these new
relationships. Without adequate controls,
the use of vendors to design or support new
bank technologies and systems could increase
a banks exposure to risk. While a bank can
outsource many functions, management
remains responsible for the performance and
actions of its vendors while the vendors are
performing work for the bank.
To have an effective planning process
for technology-related applications, banks
planning process should at least have the
following basic components:
1. Involvement of the board of directors
and senior management
The board of directors and a senior
management committee play an important
role in managing banks IT risks. Both should
have knowledge of and involvement in the
technology planning process.
The board of directors and the senior
management committee should review,
approve, and monitor technology projects
that may have a significant impact on the
APP. 75
06.12.31
banks operations, earnings or capital. In

addition, senior management is expected to
have more involvement in and more
knowledge about the day to day operations
of these projects than the board of directors.
At least one (1) key senior manager should
have knowledge and skills to evaluate
critically the design, operation and oversight
of technology projects. The board should be
fully informed by the senior management
committee, on an ongoing basis, of the risks
that technology projects may pose to the
bank.
Banks that use technology extensively,
particularly large banks, should have
sufficient expertise and knowledge among
managers and staff to provide critical review
and oversight of technology projects and to
manage risks associated with them. Projects
should be coordinated to ensure that they
adhere to appropriate policies, standards,
and risk management controls. In addition,
senior managers with knowledge of the
banks technology initiatives should report
periodically to the board of directors on
technology-related initiatives.
2. Gathering and analysis of relevant
information
Banks should consider existing systems,
consumer expectations, and competitive
forces in their planning for new or enhanced
uses of technology. In the process of
gathering and analyzing information, a bank
should:
a. Make an inventory of the existing
systems and operations. A bank should
review their existing systems to determine
whether they satisfy current and projected
bank needs. They should also evaluate how
new technologies will fit into existing
systems and whether additional changes to
those systems will be necessary to
accommodate the new technologies.
b. Review industry standards. Bank
management should assess current and
developing industry standards in
determining whether to implement specific
technologies. Technical standards help to

ensure that systems are compatible and
interoperable.
c. Determine when to deploy new
technology. Timing is critical because there
are risks in deploying new technologies too
slowly or too rapidly.
3. Assessment and Review
Bank management should carefully
assess its technology needs and review its
options within the context of overall
planning. Management should consider
whether the necessary resources, time, and
project management expertise is available
to successfully complete any new
technology proposal. Prior to adopting new
technologies, bank management should
identify weaknesses or deficiencies in the
banks ability to use them. Management
should also consider whether staff can
operate both new and existing systems
simultaneously. These considerations will
help management to choose the type and
level of technology best suited to support
its key business needs and objectives.
Banks should be cautious in establishing
project objectives and should ensure that
the objectives are neither too ambiguous nor
too ambitious. Management should control
the banks risk exposure through practical
planning. This planning may include
dividing projects into manageable segments
and establishing specific decision points as
to whether a project should be modified
or terminated. Planning should also
establish contingency and exit plans in the
event a new project does not proceed as
planned.
Management should assess and, where
possible, attempt to quantify the costs and
benefits of adopting new technology when
reviewing its options. As part of this
assessment, management should evaluate
the risks, financial consequences, and
likelihood that certain risks may occur. This
review should also include assessment of
the cost to start, run, and terminate a project.
APP. 75
06.12.31
B. Implementation
Proper implementation of projects and
initiatives is needed to convert plans into
better products and services, delivery
channels, and processes. Banks should
establish the necessary controls to avoid
operational failures and unauthorized
intrusions which could result in increased
losses and damaged reputation. At a
minimum, management should establish
technology standards that set the direction
for the bank in terms of the overall structure
or architecture of its technology systems.
Management should establish priorities
to ensure proper coordination and
integration of projects among managers,
work units, and team members. It should
provide clearly defined expectations,
including user and resource requirements,
cost estimates, project benchmarks, and
expected deliver dates. Proper project
monitoring by all relevant parties is
important. Project managers should inform
the senior management committee of
obstacles as early as possible to ensure that
proper controls are in place and corrective
action can be taken to manage risk exposure.
Proper project implementation should
a. Controls
Controls comprises of policies,
procedures, practices and organizational
structures designed to provide reasonable
assurance that business objectives will be
achieved and undesired events will be
prevented or detected and corrected. Banks
should adopt adequate controls based on
the degree of exposure and the potential risk
of loss arising from the use of technology.
Controls should include clear and
measurable performance goals, the
allocation of specific responsibilities for
key project implementation, and
independent mechanisms that will both
measure risks and minimize excessive risktaking. These controls should be reevaluated periodically.
Bank information system security

controls are particularly important. Security
measures should be clearly defined with
measurable performance standards.
Responsible personnel should be assigned
to ensure a comprehensive security program.
Bank management should take necessary
steps to protect mission-critical systems from
unauthorized intrusions. Systems should be
safeguarded, to the extent possible, against
risks associated with fraud, negligence, and
physical destruction of bank property.
Control points should include facilities,
personnel, policies and procedures, network
controls, system controls, and vendors. For
example, security access restrictions,
background checks on employees,
separation of duties, and audit trails are
important precautions to protect system
security within the bank and with vendors.
As technologies and systems change or
mature, security controls may need to
change periodically as well.
b. Policies and procedures
Bank management should adopt and
enforce appropriate policies and procedures
to manage risk related to banks use of
technology. The effectiveness of these
policies and procedures depends greatly on
whether they are in practice among bank
personnel and vendors. Testing compliance
with these policies and procedures often
helps banks correct problems before they
become serious. Clearly written and
frequently communicated policies can
establish clear assignments of duties, help
employees to coordinate and perform their
tasks effectively and consistently, and aid in
the training of new employees. Bank
management should ensure that policies,
procedures, and systems are current and
well-documented.
c. Expertise and training
Bank management should ensure that
key employees and vendors have the
expertise and skills to perform necessary
APP. 75
06.12.31
functions and that they are properly trained.

Management should allocate sufficient
resources to hire and train employees and
to ensure that there is succession planning
particularly for the critical officers of the
bank. Training may include technical course
work, attendance at industry conferences,
participation in industry working groups, as
well as time allotment for appropriate staff
to keep abreast of important technological
and market developments. Training also
includes customer orientations to ensure that
banks customers understand how to use or
access banks technology products and
services and that they are able to do so in an
appropriate and sound manner.
d. Testing
Bank management should thoroughly
test new technology systems and products.
Testing validates that equipment and
systems function properly and produce the
desired results. As part of the testing process,
management should verify whether new
technology systems operate effectively with
the banks existing systems and, where
appropriate, should include vendors. Pilot
programs or prototypes can be helpful in
developing new technology applications
before they are used on a broad scale. Testing
should be conducted periodically to help
manage risk exposure.
e. Contingency planning and business
resumption planning
Banks systems should be designed to
reduce banks vulnerability to system
failures, unauthorized intrusions, and other
problems. Bank should have back-up
systems in place and they should be
maintained and tested on a regular basis to
make sure that they will be readily available
when the need arises. The risk of equipment
failure and human error is possible in all
systems. This risk may result from sources
both within and beyond banks control.
System failures and unauthorized intrusions
may result from design defects, insufficient
system capacity, and destruction of a facility
by natural disasters or fires, security

breaches, inadequate staff training, or
uncontrolled reliance on vendors.
A bank should have business continuity
plans in place before the bank implements
new technology. They should establish a
banks course of action in the event of a
system failure or unauthorized intrusions
and should be integrated with all other
business continuity plans for bank
operations. The plan may address data
recovery, alternate data-processing
capabilities, emergency staffing, and
customer service support. Management
should establish a communication plan that
designates key personnel and outlines a
program for employee notification. The
plan should include a public relations and
outreach strategy to respond promptly to
customer and media reaction to system
failure or unauthorized intrusions.
Management should also plan for how it
may respond to events outside the bank that
may substantially affect customer
confidence, such as an operational failure
experienced by a competitor that relies on
similar technology.
Additional reference should also be made
to BSP Memorandum dated 22 January 2004
and 03 April 2003 on Back-up Operations
Centers and Data Recovery Sites and
Updated Business Continuity Plan,
respectively.
f. Proper oversight of outsourcing
activities
Bank management should ensure that
all necessary controls are in place to manage
risks associated with outsourcing and
external alliances. Management should
ensure that vendors have the necessary
expertise, experience, and financial strength
to fulfill their obligations. They also should
ensure that the expectations and obligations
of each party are clearly defined, understood
and otherwise enforceable. Management
should make certain that the bank has audit
rights for vendors so that the bank can
APP. 75
06.12.31
monitor performance under the vendor

contract.
The key elements of proper project
implementation apply whether a bank relies
on employees, vendors, or both to develop
and implement projects. Failure to establish
necessary controls may result in
compromised security, substandard service,
and the installation of incompatible
equipment, system failure, uncontrolled
costs, and the disclosure of private customer
information. If a bank joins or forms
alliances with other banks or companies,
management should perform adequate due
diligence to ensure that the joint-venture
partners are competent and have the financial
strength to fulfill their obligations. Adequate
bank resources will be required to monitor
and measure performance under the terms of
any third-party agreement. Additional
reference should be made to Sec. X169 on
Outsourcing.
C. Measurement and monitoring
As part of both planning and monitoring,
banks must establish clearly defined
measurement objectives and conduct
periodic reviews to ensure that goals and
standards established by bank management
are met. Goals and standards should include
an emphasis on data integrity, which is
essential to any effective use of technology.
Information should be complete and
accurate both before and after it is processed.
This is a particular concern in any significant
merger with other institutions or acquisition
of other businesses. Control of technology
projects is complex because of the difficulty
in measuring progress and determining
actual costs. It is important that bank
management establish benchmarks that are
appropriate for particular applications.
Ultimately, the success of technology depends
on whether it delivers the intended results.
Management should monitor and
measure the performance of technology
related products, services, delivery
channels, and processes in order to avoid

potential operational failures and to mitigate
the damage that may arise if such failures
occur. Bank management should establish
controls that identify and manage risks so
that the bank can adequately manage them.
To ensure accountability, management
should specify which managers are
responsible for the business goals,
objectives, and results of specific technology
projects or systems and should establish
controls, which are independent of the
business unit, to ensure that risks are
properly managed. Technology processes
should be reviewed periodically for quality
and compliance with control requirements.
Auditing
Auditors provide an important control
mechanism for detecting deficiencies and
managing risks in the implementation of
technology. They should be qualified to
assess the specific risks that arise from
specific uses of technology. Bank
management should provide auditors with
adequate information regarding standards,
policies, procedures, applications, and
systems. Auditors should consult with bank
management during the planning process to
ensure that technology-related systems are
audited thoroughly and in a cost-effective
manner.
Quality assurance
Bank management should establish
procedures to ensure that quality assurance
efforts take place and that the results are
incorporated into future planning in order
to manage and limit excessive risk taking.
These procedures may include, for example,
internal performance measures, focus
groups and customer surveys. Bank should
conduct quality assurance reviews
whenever it engages in a significant
combination with another institution or
acquires another business.
APP. 76
07.12.31
AUTHORIZATION FORM FOR QUERYING THE BSP WATCHLIST FILES FOR

SCREENING APPLICANTS AND CONFIRMING APPOINTMENTS OF
DIRECTORS AND OFFICIALS
AUTHORIZATION
I,
, after being sworn in accordance with law, do
hereby authorize the following, pursuant to the provisions of Subsec. X143.5(c), of the
MORB:
(Name of Bank)
, to conduct a background investigation
a)
on myself relative to my application for or appointment to the position of (position)
in
(Name of Bank)
which include, among others, inquiring from the
Watchlist Files of the BSP; and
b) The BSP to disclose its findings pertinent to the aforementioned inquiry on the said
watchlist files to
(Name of Bank)
.
With the above authorization, I hereby waive my right to the confidentiality of the
information that will be obtained as a result of the said inquiry, provided that disclosure of
said information will be limited for the purpose of ascertaining my qualification or nonqualification for the said position.
IN WITNESS WHEREOF, I have hereunto set my hand this ________________.
______________________________
(Signature Over Printed Name)

________________________
(Witness)
________________________
(Witness)
APP. 76
07.12.31
ACKNOWLEDGMENT
REPUBLIC OF THE PHILIPPINES } S.S.

_________________CITY
}
BEFORE ME, this ___ day of _________________200___ in __________________
personally appeared the following person:
Name
Community Tax
Certificate
Place
Date
known to me to be the same person who executed the foregoing instrument and he
acknowledged to me to be the same person who executed the foregoing instrument and
he acknowledged to me that the same is his free act and deed.
This instrument, consisting of two (2) pages, including the page on which this
acknowledgment is written, has been signed on the left margin of each and every page
thereof by __________________, and his witnesses, and sealed with my notarial seal.
IN WITNESS WHEREOF, I have hereunto set my hand, the day, year and place
above written.
Notary Public
Doc. No.: __________
Page No.: __________
Book No.: __________
Series of 200___
(as amended by CL-2007-001 dated 04 January 2007 and CL-2006-046 dated 21 December 2006)
APP. 77
08.12.31
FINANCIAL REPORTING PACKAGE

(Appendix to Subsection X161.3)
The Financial Reporting Package
(FRP) is a set of financial statements for
prudential reporting purposes composed
of the Balance Sheet, Income Statement
and Supporting Schedules. The FRP is
primarily designed to align the BSP
reportorial requirements with the
(1) provisions of the Philippine Financial
Reporting Standards (PFRS)/Philippine
Accounting Standards (PAS) and (2)
Basel 2 Capital Adequacy Framework.
It is also designed to meet BSP statistical
requirements.
Organization of the Instructions of the
FRP
This instruction is divided into the
following sections:
(1) The General Instructions, which
describe the overall reporting
requirements;
(2) Structure of the FRP;
(3) Manual of Accounts, which
provides in the order presented in the
Balance Sheet and the Income
Statement the definitions of the accounts
in the FRP;
(4) Line Item Instructions for the
Balance Sheet; Income Statements and
Supporting Schedules; and
(5) Report Formats, for solo and
consolidated reports
In determining the required
treatment of particular transactions or in
determining the definitions of the
various items, the General Instructions,
the Structure of the FRP, Manual of
Accounts and Line Item Instructions
must be used jointly. A single section
does not necessarily give the complete
instructions for accomplishing the main
report and schedules.
GENERAL INSTRUCTIONS
Who must Report on What Forms/
Schedules
All banks are required to prepare the
FRP. The FRP shall be prepared on a solo
and consolidated basis. Solo basis shall refer
to the combined financial statements of the
head office and branches/other offices.
Consolidated basis shall refer to the
combined financial statements of parent
bank and subsidiaries consolidated on a
line by line basis. Only banks with
financial allied subsidiaries, excluding
insurance subsidiaries, shall submit the
report on consolidated basis.
The solo and consilidated FRP shall be
prepared on a quarterly basis, except for
the solo balance sheet and the following
selected schedules which shall be prepared
on a monthly basis.
(1) Schedule 1 : Checks and Other Cash
Items
(2) Schedule 2 : Due from Other Banks
(3) Schedule 3 : Financial Assets Held
for Trading
(4) Schedule 4a : Derivatives Held for
Trading, Matrix of
Counterparty and Type
of Derivative Contracts
(5) Schedule 5 : Financial Assets
Designated at Fair
Value Through Profit
or Loss
(6) Schedule 6 : Available for Sale
Financial Assets
(7) Schedule 7 : Held to Maturity
Financial Assets
(8) Schedule 8 : Unquoted Debt
Securities Classified
as Loans
(9) Schedule 9 : Investment in Non
Marketable Equity
Securities
APP. 77
08.12.31
(10) Schedule 10 : Interbank Loans
Receivables
(11) Schedule 11 : Loans and Receivables
Others
(12) Schedule 11a :Loans and Receivables
to 11a4
Others, Classified
as to Status
(13) Schedule 11b : Restructured Loans
to 11b4
and
Receivables,
(14) Schedule 11d : Loans and Receivables
to 11d4
Others, at Amortized
Cost, Classified as to
Type of Business/
Industry
(15) Schedule 11f :Schedule of Agri/Agra,
SME, Development
Loans Incentives and
Microfinance Loans
and Receivables,
Classified as to
Counterparty
(15) Schedule 12 :Loans and Receivables
Arising from Repurchase
Agreements,
Certificates of
Assignment/
Participation with
Recourse and
Securities Lending
and Borrowing
Transactions, By
Counterpart
(16) Schedule 15 :Equity Investment in
Subsidiaries,
Associates and Joint
Ventures
(17) Schedule 19 :Other Assets
(19) Schedule 20 :Breakdown of Due
from/to HO/Branches/
Agencies Abroad
Philippine Branch of a
Foreign Bank
(20) Schedule 22 :Deposit Liabilities
Classified as to Type
of Deposit
(21) Schedule 23 :Due to Other Banks
(18) Schedule 24 :Bills Payable
(19) Schedule 28 :Other Liabilities
Solo and consolidated income

statement shall be prepared quarterly on a
cumulative basis, i.e., first quarter report
shall cover results of operations during the
first quarter, second quarter report shall
cover results of operations during the first
and second quarters, etc.
All schedules shall be available to any
type of reporting bank. Hence, schedules
that do not apply to a particular bank should
only be left blank when submitted.
Frequency of Reporting
The solo FRP, shall be submitted
quarterly within fifteen (15) banking days
after the end of the reference quarter. The
solo balance sheet and the selected
schedules listed above shall be submitted
monthly within fifteen (15) banking days
after the end of the reference month. The
consolidated FRP, on the other hand, shall
be submitted quarterly within thirty (30)
banking days after end of reference
quarter.
The following schedules or columns of
particular schedules of the solo and/or
consolidated FRP, however, are required
to be submitted and/or accomplished only
annually (i.e. end December of each year):
(1) Schedule 6b : Available for Sale
to 6b(3)
Financial Assets
("Collateral and Other
Credit Enhancements
Received as Security
for the Related
Impaired and Past
Due Assets" column)
(2) Schedule 6c : Available for Sale
to 6c(3)
Financial Assets
Movements in
Allowances for Credit
Losses
(3) Schedule 7b : Fair Value of Held to
Maturity Financial
Assets
APP. 77
08.12.31
(4) Schedule 7c : Held to Maturity
to 7c(3)
Financial Assets
("Collateral and
Other Credit
Enhancements
for the Related
Impaired and Past Due
Assets column)
(5) Schedule 7d : Held to Maturity
to 7d(3)
Financial Assets
Movements in
Losses
(6) Schedule 8a : Fair Value of Unquoted
Debt Securities
Classified as Loans
(7) Schedule 8b : Unquoted Debt
to 8b(3)
Securities Classified as
Loans (Collateral and
Other Credit
Enhancements
for the Relate
Impaired and Past Due
Assets column)
(8) Schedule 8c : Unquoted Debt
to 8c(3)
Securities Classified as
Loans Movements in
Losses
(9) Schedule 11e : Loans and
to 11e(3)
Receivables-Others
Per PAS 39
(10) Schedule 15a : Investment in
Subsidiaries,
Associates and Joint
Ventures
(Fair Value Column)
(11) Schedule 18 : Tax Assets and
Liabilities
(12) Schedule 26 : Fair Value of Financial
Liabilities
Rules of Consolidation
In preparing consolidated financial
statements, only investments in financial
allied subsidiaries except insurance
subsidiaries shall be consolidated on a
line-by-line basis in accordance with
PAS 27 "Consolidated and Separate

Financial Statements", while insurance and
non-financial allied subsidiaries shall be
Financial/non-financial allied/non-allied
associates shall be accounted for using the
equity method in accordance with the
provisions of PAS 28 "Investments in
Associates".
For purposes of preparing solo financial
statements, financial/non-financial allied/
non-allied subsidiaries/associates, including
insurance subsidiaries/associates, shall also
be accounted for using the equity method.
For purposes of preparing consolidated
reports, the "Peso accounts", "Foreign
accounts", "FCDU/EFCDU" and "Foreign
Offices", and their supporting schedules shall
not be filled-up/accomplished.
Amounts Reported
All amounts reported in the FRP must
be in absolute figures including two (2)
decimal places, except for "Losses"
columns/rows which shall be reported in
negative figures, i.e., enclosed in
parentheses.
STRUCTURE OF THE FRP
(1) The FRP is designed to reflect the
two (2) types of books as follows 1 :
(1) regular banking book, which shall be
comprised of (a) peso accounts; and (b)
foreign accounts and (2) FCDU/EFCDU as
allowed under Circular No. 1389 dated
13 April 1993, as amended. Transactions
in the foreign regular and FCDU/EFCDU
books shall be recorded at their foreign
currency amounts and their local currency
equivalent using the Philippine Dealing
System (PDS) Peso/US Dollar closing rate
and the New York US Dollar/Third
Currencies closing rate.
(2) The FRP generally groups
transactions into the different counterparties
of the reporting bank. Foreign offices and
APP. 77
08.12.31
branches of local banks abroad shall classify

their counterparties from the perspective
of the Head Office. Counterparties are
broadly classified as to residents and
non-residents and further sub-classified into
the different sectors and institutional units
defined as follows:
(a) Residents This refers to individuals
or institutional units that have a center of
economic interest in the economic territory
of the Philippines.
(a.1) Government
(i) National Government This refers
to the Philippine National Government
and its agencies such as departments,
bureaus, offices, and instrumentalities, but
excluding local government units and
government-owned and controlled
corporations.
(ii) Local Government Units (LGUs)
This refers to the Philippine government
units below the level of national
government, such as city, provincial and
municipal governments.
(iii) Government-Owned and Controlled
Corporations (GOCCs) This refers to any
agency organized as a stock or non-stock
corporation vested with functions relating
to public needs whether governmental or
proprietary in nature, and owned by the
government directly or indirectly or
through its instrumentalities either wholly,
or where applicable as in the case of stock
corporations to the extent of at least
fifty-one percent (51%) of its capital stock:
Provided, That GOCCs may be further
categorized by the DBM, the Civil Service
Commission and the COA for the purpose
of the exercise and discharge of their
respective powers, functions and
responsibilities with respect to such
corporations.
Social Security Institutions (SSIs)

This refers to the social security agencies
such as the Employees Compensation
Commission (ECC), Government Service
Insurance System (GSIS), Philippine Health
Insurance Corporation (PhilHealth) and

Social Security System (SSS).
Other FIs This refers to GOCCs

that are primarily engaged in financial
intermediation or in auxiliary financial
activities that are closely related to financial
intermediation but are not classified as
banks such as the Home Guaranty
Corporation (HGC), Trade and Investment
Development Corporation (TIDCORP) and
Small Business Corporation (SBC)
Non-FIs This refers to GOCCs

that may not be classified as a social
security institution nor other FIs.
(a.2) BSP
(a.3) Banks
UBs/KBs This refers to UBs and

KBs as defined under existing laws and
regulations.
Government Banks This refers

to UBs/KBs owned or controlled by the
national government such as the DBP, the
LBP and the Al-Amanah Islamic Investment
Bank of the Philippines.
Non-Government Banks This

refers to private UBs/KBs, which are
neither owned nor controlled by the
national government, including branches
of foreign banks licensed as UBs/KBs
operating in the Philippines.
(ii) Other Banks This refers to
banks other than UBs/KBs i.e., TBs, RBs
and Coop. Banks.
(a.4) Private Corporations
(i) Financial - This refers to private
corporations that are primarily engaged in
financial intermediation or in auxiliary
financial activities that are closely related
to financial intermediation but are not
classified as banks. This shall include
among others, insurance corporations,
pension funds that are constituted as
separate from the units that have created
them, NSSLAs and QBs. Except in the case
of Loans and Receivables Interbank
Loans and Receivables where QBs shall
be a separate line item.
Provide Columns (in US$ and Peso Equivalent) for foreign accounts, where applicable.
APP. 77
08.12.31
(ii) Non-Financial This refers to

private corporations whose principal
activity is the production of goods or nonfinancial services for sale.
(b) Non-Residents This refers to
individuals or institutional units that have
a center of economic interest outside the
economic territory of the Philippines.
(b.1) Central Government/Central
Bank Central Government refers to the
central government of a foreign country
which is regarded as such by a recognized
banking supervisory authority in that
country. Central Bank refers to the national
FI (or institutions) that exercises control
over key aspects of the financial system
and carries out such activities as issuing
currency, managing international reserves,
and providing credit to other depository
corporations.
(b.2) Public Sector Entities This refers
to entities which are regarded as such by
a recognized banking supervisory
authority in the country in which they are
incorporated.
(b.3) Banks
(i) Off-Shore Banking Units (OBUs)
This refers to a branch, subsidiary or affiliate
of a foreign banking corporation which is
duly authorized by the BSP to transact
offshore banking business in the
Philippines.
(ii) Other Banks This refers to the
non-resident banks other than OBUs.
(b.4) Corporations This refers to nonresident corporations.
(c) Multilateral Agencies This refers
to the World Bank Group comprised of the
IBRD and the IFC, ADB, AfDB, the EBRD,
the IADB, the EIB, the NIB; the CDB, the
CEDB and such others as may be
(3) The supporting schedules in the
FRP contain an Additional Information
section which requires disclosure of
information necessary for validating
compliance with other BSP requirements
and for statistical purposes. Among the

information required to be disclosed are
the following:
(a) Classification as to Original Term,
which shall be reported only for solo reports
(a.1) Short Term (1 year or less)
(a.2) Medium Term (>1 year to 5
years)
(a.3) Long Term (> 5 years)
(b) Geographic Regions of NonResident Counterparties
(b.1) Advanced Economies Australia;
Austria; Belgium; Canada; Cyprus;
Denmark; Finland; France; Germany;
Greece; Hong Kong SAR; Iceland;
Ireland; Israel; Italy; Japan; Korea;
Luxembourg; Netherlands; New
Zealand; Norway; Portugal; Singapore;
Slovenia; Spain; Sweden; Switzerland;
Taiwan Province of China; United
Kingdom and United States
(b.2) Regions Excluding Advanced
Economies
(i) Africa Algeria; Morocco; Tunisia
and Sub-Sahara
Of which; Sub-Sahara South Africa;
Djibouti; Ethiopia; Sudan; Burundi; Congo,
Democratic Republic of; Kenya; Rwanda;
Tanzania; Uganda; Angola; Botswana;
Comoros; Lesotho; Madagascar; Malawi;
Mauritius; Mozambique, Republic of;
Namibia; Seychelles; Swaziland; Zambia;
Zimbabwe; Cape Verde; Gambia, The;
Ghana; Guinea; Mauritania; Nigeria; Sao
Tome and Principe; Sierra Leone; Benin;
Burkina Faso; Cameroon; Central African
Republic; Chad; Congo, Republic of; Cote d
Ivoire; Equatorial Guinea, Gabon; Guinea
Bissau; Mali; Niger; Senegal; and Togo.
(ii) Central and Eastern Europe Albania; Bulgaria; Croatia; Czech Republic;
Estonia; Hungary; Latvia; Lithuania;
Macedonia, FYR; Malta; Poland; Romania;
Slovak Republic and Turkey.
(iii) Commonwealth of Independent
States Armenia; Azerbaijan; Belarus;
Georgia; Kazakhstan; Kyrgyz Republic;
APP. 77
08.12.31
Moldova; Mongolia; Russia; Tajikistan;

Turkmenistan; Ukraine and Uzbekistan.
(iv) Developing Asia Bangladesh;
Bhutan; Cambodia; China; Fiji; India;
Indonesia; Kiribati; Lao PDR; Malaysia;
Maldives; Myanmar; Nepal; Pakistan;
Papua New Guinea; Samoa; Solomon
Islands; Sri Lanka; Thailand; Tonga;
Vanuatu and Vietnam.
(v) Middle East Bahrain; Iran I.R.;
Kuwait; Libya; Oman; Qatar; Saudi Arabia;
United Arab Emirates; Yemen, Republic of;
Egypt; Jordan; Lebanon and Syrian Arab
Republic.
(vi) Western Hemisphere Mexico;
Argentina; Brazil; Bolivia; Chile; Colombia;
Ecuador; Paraguay; Peru; Uruguay;

Venezuela; Costa Rica; El Salvador;
Guatemala; Honduras; Nicaragua;
Panama; Antigua and Barbuda; Bahamas,
The; Barbados; Belize; Dominica;
Dominican Republic; Grenada; Guyana;
Haiti; Jamaica; St. Kitts and Nevis; St. Lucia;
St. Vincent and the Grenadines; Suriname
and Trinidad and Tobago.
Definition of the other items and
instructions for filling-out the Additional
Information section of each supporting
schedule are presented in the Line Item
Instructions.
(Circular No. 512 dated 03 February 2006 as amended by M-2008-012
dated 14 March 2008 and Circular No. 568 dated 08 May 2007)
APP. 78
07.12.31
GUIDELINES FOR TRUST DEPARTMENTS PLACEMENTS

IN THE SDA FACILITY OF BSP
The following are the guidelines
governing the trust deparments placements
in the SDA facility of BSP.
1. Access to the subject BSP facility
shall be granted upon receipt by the BSP
Treasury Department (BSP-TD) of a letter
of request (Appendix 78 Annex 1) for
account opening together with the following
requirements:
a. Internal approvals allowing the trust
department to invest in the BSP SDA
facility;
b. A list of authorized signatories;
c. A list of authorized traders; and
d. Contact details for the front and back
offices.
2. The trust department shall use a
depository institution that is a PhilPASS
member when placing its funds in the SDA
facility. On transaction date, the trust
department shall instruct said depository
institution to debit their account in favor of
their SDA with the BSP. Similarly, the trust
department shall specify a PhilPASS
member to which its principal and interest
will be credited at maturity of the SDA
placement.
3. Trading hours shall be from I0:00
am to 3:00 pm for all business days. All
trades shall settle on trade date.
4. Applicable tenors and pricing shall
be based on published rates (i.e., in
Bloombergs CBPHI and Reuters BANGKO
page).
5. The existing tiering scheme, as
detailed below shall be applied to the SDA
placements of the trust departments
separately from the placements of their bank
proper.
Tier
Tiered Rate
Amounts less than or
equal to P5.0 billion
BSP published rate
Tier
Amounts in excess of
P5.0 billion up to
PI0.0 billion
Amounts in excess of
PI0.0 billion
Tiered Rate
BSP published rate less
2%
BSP published rate less
4%
6. The minimum placement is P10.0

million with the additional amounts in
increments of PI .0 million.
7. Trust departments may place only
once per tenor per day
8. Trust departments may preterminate their SDA placements, either fully
or partially. If the holding period of the SDA
placement when it is rate pre-terminated is
less than fifty percent (50%) of the original
tenor of the said placement, the applicable
interest rate for the pre-terminated amount will
be the rate dealt on value date less two percent
(2%) p.a. If the holding period is fifty percent
(50%) or more of the original tenor, the
applicable interest rate for the pre-terminated
amount will be the rate dealt on value date
less one percent (1%) p.a. The pre-termination
rate shall apply only to the amount preterminated.
9. The income from the SDA is subject
to a twenty percent (20%) final withholding
tax
10. Depository institution shall
generally follow the existing settlement
process for SDA placements with BSP of
banks. The trust department will be required
to send the transaction confirmation directly
to the BSP-TD back office. A sample
confirmation is attached as Appendix 78
Annex 1 and Annex 2.
11. Trust departments may request a
statement from the BSP-TD for their
outstanding SDA placement as of a specified
date.
(M-2007-011 dated 08 May 2007)
APP. 78
07.12.31
Annex 1
(Institutions Letterhead)
Date:_____________________
Mrs. Ma. Ramona GDT Santiago
Managing Director
Treasury Department
Dear Madam:
Pursuant to Monetary Board Resolution Nos. 433 and 518 dated 19 April 2007 and
3 May 2007, allowing trust departments to place their funds in the BSPs Special Deposit
Account (SDA) facility, the trust department of (name of institution) respectfully request the
creation of an account for the said facility.
Please find attached the following documents, as required:
a. Internal approvals allowing the trust department to invest in the SDA
facility;
b. A list of authorized signatories;
c. A list of authorized traders; and
d. Contract details for the front and back offices.
For your kind attention.
Very truly yours,
__________________________
__________________________
APP. 78
07.12.31
Annex 2
(Institutions Letterhead)
Date:_________________
TREASURY DEPARTMENT
Treasury Services Group - Domestic
Gentlemen:
This is to confirm our Special Deposit Account placement to yourselves as
follows:
VALUE DATE
TERM
MATURITY DATE
RATE
PRINCIPAL AMOUNT
GROSS INTEREST
WITHHOLDING TAX
NET MATURITY VALUE
On value date, our funds will come from Regular Demand Deposit account of
(name of depository bank).
Accordingly, please CREDIT the Regular Demand Deposit Account of
(name of depository bank) on maturity date the amount of ____________PESOS (P___________),
representing full payment of the principal plus interest (net of applicable withholding tax)
thereon.
Very truly yours,

___________________________
___________________________
APP. 78a
07.12.31
SDA PLACEMENTS OF TRUST DEPARTMENTS/ENTITIES AS AGENT

FOR TAX-EXEMPT INSTITUTIONS (TEI) AND ACCOUNTS
(Appendix to Subsection X409.2)
Section 1. Placement of tax-exempt
accounts in the SDA facility should comply
with existing minimum placement and
incremental requirements for the SDA
facility.
Sec. 2. On transaction date, the trust
department/entity must inform the BSP the
exact amount of the tax-exempt placement
in the SDA and submit the following
supporting documents:
a. Copy of the relevant ruling from the
BIR, duly certified by the latter, affirming
the exemption from taxes of the income
earned by concerned TEls or accounts from
their investments;
b. Copy of the board resolution duly
certified by the corporate secretary
authorizing the placement (directly for
managed funds or indirectly through
designated trustee bank/FI in the case
of managed trust funds) in the SDA
facility;
c. Copy of the covering trust

agreement; and
d. Certification from the trust
department that such placements, for as long
as these are outstanding, are owned by the
specified TEls and are accordingly exempt
from said twenty percent (20%) final
withholding tax (FWT). Shown in Annex 1.
Advance copies may be sent through
facsimile (facsimile number 523-3348) or
electronic mail of BSP-Treasury Back Office
personnel (jsiguenza@bsp. gov. ph).
Absent the supporting documents by
end of the business day, the tax-exempt
placement will be cancelled.
Sec. 3. For outstanding tax-exempt SDA
placements as of 01 November 2007, trust
departments must submit the documents
specified in Item "2" hereof on or before 04
December 2007 to avail of the exemption
from withholding tax.
( M-2007-038 dated 29 November 2007)
APP. 78a
07.12.31
Annex 1
(Trust Entity/Departments Letterhead)
Date:______________________
Ms. Ma. Ramona GDT Santiago
Managing Director
Treasury Department
A. Mabini corner P. Ocampo Sts.
Manila 1004
Dear Ms. Santiago:
This refers to the placement/s amounting to (Peso Amount) placed in the BSPs SDA facility at
(SDA rate) % per annum for value (Value date) to mature on (Maturity date).
This is to certify that the above placement/s is/are transacted on behalf of the following TaxExempt Institutions (TEI) or tax-exempt funds and interest income thereon are exempt from the twenty
percent (20%) final withholding tax based on the corresponding BIR rulings:
Tax Exempt Institutions
Basis
(BIR Ruling No. and date)
Amount
1.
2.
3.
(rows may be increased depending on number of placements)
TOTAL
This is to further certify that above placements will be owned by the specified TEIs/tax-exempt
funds for as long as these placements are outstanding.
In the event that the BSP is assessed for deficiency final withholding tax on the above
placements by the Bureau of Internal Revenue (BIR), (Bank name) shall be liable for and pay such
deficiency taxes and surcharges, and/or indemnify/reimburse the BSP for such deficiency taxes and
surcharges that the latter may eventually pay to the BIR as a result thereof. Further, (Bank name)
hereby authorizes the BSP to automatically debit its regular demand deposit account with the BSP for
payment or reimbursement of any such deficiency taxes and surcharges.
Sincerely yours,
HEAD OF TRUST DEPARTMENT
SUBSCRIBED AND SWORN to before me this ____ day of____________________ 2007 at
______________________, affiant exhibiting to me his Community Tax Certificate/Passport No.
____________, issued at _________________, on _____________________.
Notary Public
Doc. No.
Page No.
Book No.
Series of
_________;
_________;
_________;
200___
APP. 79
07.12.31
GUIDELINES IN DETERMINING COMPLIANCE WITH CEILINGS

ON EQUITY INVESTMENTS
(Appendix to Secs. X378, X380, 1381, and X383, Subsecs. X379.1, 1381.1, and 1381.2)
The following are the guidelines in
determining compliance with ceilings on
equity investments prescribed under
Sections/Subsections X3781, X379.1, X380,
1381, 1381.1, 1381.2 and X383, in view
of the adoption of the PFRS/PAS:
a. Components of equity investment.
Equity securities booked under the
Designated at Fair Value Through Profit or
Loss (DFVPL), Available-For-Sale,
Securities (INMES) and Equity Investments
in Subsidiaries/Associates/Joint Ventures
categories shall all be considered in
computing for compliance with the ceilings
on equity investments prescribed under Sec.
X383 and Subsec. X379.1: Provided, That
Underwritten equity securities booked
under the Available-For-Sale category shall
be excluded from total equity investments
for a period of two (2) years from the date
of acquisition thereof: Provided, further,
That upon prescription of the two (2) year
period, such equity securities shall be
booked according to intention and shall
then be included in the computation of
compliance with the prescribed ceilings.
For this purpose, the following financial
instruments shall likewise be included in the
computation of compliance with the
prescribed ceilings:
(1) Equity securities including those
accounted for as debt instruments booked
under the Held for Trading (HFT) category,
which remain unsold for more than one (1)
year.
(2) Mandatorily redeemable preferred
shares and preferred shares of similar nature
that are accounted for as debt instruments,
which may also be booked under the HTM
or Unquoted Debt Securities Classified as
Loans (UDSCL) categories.
(3) Investments in Hybrid Tier 1

securities that are issued in the form of
perpetual preferred shares.
b. Shares of stock acquired in
settlement of loans. Shares of stock of
another corporation acquired in settlement
of loans shall be excluded from total equity
investments for purposes of determining
compliance with the prescribed ceilings on
equity investments: Provided, That
confirmation of the Monetary Board shall
be required in the following cases within
thirty (30) days from the date of acquisition:
(1) Acquisition of shares of stock of
non-allied enterprises by banks without
universal banking authority, otherwise
prohibited in Sec. 1381;
non-allied enterprises other than those
specified under Subsec. 1381.1 by banks
with universal banking authority, otherwise
requiring prior Monetary Board approval;
non-allied enterprises by UBs in excess of
limits provided in Subsec. 1381.2;
financial allied enterprises by banks, in
excess of limits provided in Sec. X378; and
non-financial allied enterprises by TBs and
RBs in excess of limit provided in Sec. X380.
Provided, further, That said
confirmation shall be subject, among others,
to the condition that such shares of stock
shall be disposed of within a reasonable
period not to exceed five (5) years from the
date of acquisition thereof.
c. Basis of computation. Compliance
with the prescribed ceilings on equity
investments shall be determined at each
time additional equity securities are
acquired or shall be considered in the
1 amended by Circular No. 530 dated 19 May 2006
APP. 79
07.12.31
computation as in the case of prescription

of the two (2) year period for underwritten
equity securities or in the case of equity
securities booked under the HFT category,
which remain unsold for more than one (1)
year. Further, this shall be computed using
the carrying amount of the equity
securities, which shall be the fair value
(marked-to-market amount) for those
investments booked under HFT, DFVPL and
Available- For-Sale, amortized cost for those
investments booked under HTM and
UDSCL or the cost and adjusted cost for
those booked under INMES and Equity
Investment in Subsidiaries/Associates/Joint
Ventures, respectively, net of Allowance for
Credit Losses where applicable.
For this purpose, adjusted cost shall refer
to the acquisition cost of Investments in
Subsidiaries/Associates/Joint Ventures
adjusted for the investors share of the profit
or loss of investee after the date of
acquisition and other adjustments to the
carrying amount of the investment.
d. Transitory Provisions. Banks with
acquired shares of stock in settlement of
loans that fall under any of the following
cases, which have not been previously
confirmed by the Monetary Board, shall seek
confirmation by the Monetary Board of such
acquisition not later than ninety (90) banking
days from 5 October 2007.
(1) Those without universal banking

authority with acquired shares of stocks of
non-allied enterprises in settlement of loans
prohibited in Sec. 1381;
(2) Those with universal banking
authority with acquired shares of stock of nonallied enterprises in settlement of loans other
than those specified under Subsec. 1381.1;
(3) Those with universal banking
authority with acquired shares of stock of
non-allied enterprises in settlement of loans
that are in excess of limits prescribed in
Subsec. 1381.2;
(4) Those with acquired shares of stock
of financial allied enterprises in settlement
of loans that are in excess of limits provided
in Sec. X378; and
(5) TBs and RBs with acquired shares
of stock of non-financial allied enterprises
in settlement of loans that are in excess of
limit provided in Sec. X380.
Provided, That said confirmation shall
be subject, among others, to the condition
that such shares of stock shall be disposed
of within a reasonable period not to exceed
five (5) years from 05 October 2007.
e. Sanctions. Any violation of the
provisions of this Appendix shall subject the
bank and the director/s and/or officer/s
concerned to the sanctions provided under
APP. 80
07.12.31
GUIDELINES AND PROCEDURES GOVERNING CURRENCY DEPOSITS AND

WITHDRAWALS OF BANKS FOR CREDIT TO AND DEBIT FROM THEIR
DEMAND DEPOSIT ACCOUNTS WITH THE BSP
Currency notes/coins are classified as
fit, unfit and mutilated pursuant to Sec.
X610. The BSP Cash Department (CD) and
Regional Offices/Branches shall accept all
types of currency notes/coins for deposit
except mutilated currency notes/coins, which
must be presented directly for determination
of redemption/exchange value to CD or the
nearest BSP Regional Office/Branch in
accordance with Subsec. X610.6(f).
Banks are encouraged to arrange direct
exchange of their accumulated excess fit
currency notes/coins with other banks to
optimize circulation of said notes/coins and
to deposit only unfit currencies to their
DDAs with BSP.
To facilitate the expeditious receipt of
banks cash deposits and servicing of their
cash withdrawals by BSP, all banks,
including their provincial branches shall
observe the following guidelines and
procedures when making cash deposits
and/or withdrawals with BSP CD or any of
the BSP Regional Offices/Branches:
a. Receiving/releasing of banks cash
deposits/withdrawals shall start at 9:00 A.M.
and end at 2:00 P.M.
b. Banks should pre-sort all their
currency notes/coins for fitness to ensure
that only pre-counted fit or unfit currency
is deposited with BSP to effect an
expeditious servicing of banks cash
withdrawals and retirement of unfit
currency notes pursuant to the Clean Note
Policy of BSP under Subsec. X610.5.
c. The BSP shall accept fit and unfit
note deposits only after conducting
package and bundle count. Fit notes need
not be verified piece-by-piece by the BSP
before the same shall be re-issued to service
cash withdrawals of banks.
d. Bank deposits of fit currency

notes referred to in Item "c" above not
withdrawn by the banks shall be verified
piece-by-piece by the BSP on schedued
dates.
e. The BSP shall accept coin deposits
in standard quantity per denomination in
containers prescribed by BSP.
CURRENCY DEPOSITS
f. Head Offices/Cash Centers of
banks in Metro Manila or their designated
cash center/main branch in the provinces
shall make direct deposits of currency notes
and coins with the BSP CD or the nearest
BSP Regional Office/Branch, respectively.
The currency notes shall be duly classified
as fit or unfit in accordance with the
Currency Guide for Bank Tellers, Money
Counters and Cash Custodians prepared
by BSP CD, and by denomination pursuant
to Subsec. X610.5 (a).
g. In areas where there are no BSP
Regional Offices/Branches, provincial
branches of banks shall arrange with their
respective Head Offices the shipment of
their unfit notes/coins for deposit with
BSP CD. Cost of shipment and other
related expenses to be incurred shall be
solely for the account of the bank
concerned.
h. Banks shall provide securely sealed
transparent plastic bags prescribed by the
BSP for their deposits at BSP CD; separately
for the fit and unfit notes. Each plastic bag
shall have uniform capacity of twenty (20)
full bundles accompanied by a deposit slip
for each type/category. The deposit slip for
each type/category of currency notes shall
be clearly labeled as FIT or UNFIT as
the case may be.
APP. 80
07.12.31
At the BSP Regional Offices/Branches,

banks shall provide securely sealed portable
metal sheet or GI sheet boxes measuring
15 in length x 12 in width x 14 in height
for their deposits, separately for the fit and
unfit notes. Each prescribed container shall
have uniform capacity of twenty (20) full
bundles, accompanied by a deposit slip for
each type/category. The deposit slip for each
type/category of currency notes shall be
clearly labeled as Fit or Unfit as the case
may be.
i. To facilitate handling of cash
deposits, notes and coins shall be arranged
and placed in prescribed containers in the
following manner:
(1) Fit and Unfit Currency Notes
(a) Notes of a single denomination
must be arranged face and top up in
packages of 100 pieces each:
(b) The wrapper of each package shall
be plainly marked with:
(i) the denomination and amount of
currency in the package;
(ii) the date of verification;
(iii) the printed name(s) and signature(s)
of depositing banks employee(s) who
performed the verification; and
(iv) the name of the depositing bank,
(c) Pins, clips and staple wires, if any,
must be removed prior to deposit in order to
avoid possible injury to employees and
damage to equipment;
(d) Individual packages of 100 notes
each shall be strapped/bundled in standard
units as follows:
Denomination
1000-Piso
500-Piso
200-Piso
100-Piso
50-Piso
20-Piso
Standard
Value
Unit No.
of Package
(Per 1 Bundle)
10
P 1,000,000.00
10
500,000.00
10
200,000.00
10
100,000.00
10
50,000.00
10
20,000.00
(e) Notes of different denominations

shall not be mixed in a single package/
bundle/container;
(f) Bundled notes shall be packed in
sealed plastic containers in uniform quantity
of twenty (20) complete bundles per
denomination (each bundle containing
1,000 notes in ten equal packages, each
package containing 100 notes); and
g. A packing list/tag of the currency
in each plastic container shall be placed
inside the container. Another tag shall be
attached to the container.
(2) Coins
(a) The coin container bearing the
name of the bank shall be prescribed by
the BSP;
(b) A tag shall be attached to each bag
indicating the denomination, quantity,
amount, and date deposited:
(c) Individual bags shall contain
standard quantities per denomination as
follows:
Denomination
10-Piso
5-Piso
1-Piso
25-Sentimo
10-Sentimo
5-Sentimo
1-Sentimo
Quantity
Value
(Pieces)
1,200
P12,000.00
1,500
7,500.00
2,000
2,000.00
3,000
750.00
4,500
450.00
5,000
250.00
5,000
50.00
j. Upon delivery of the currency

notes/coins to the BSP CD/Regional Office/
Branch, the representative of the depositing
bank shall witness the package and bundle
count for notes and bag count for coins
made by the BSP CD/Regional Office/
Branch Accountable Officer concerned. If
found in order, said BSP officer shall
acknowledge receipt of the currency note/
coin deposits.
k. Deposits of currency notes at BSP
CD need not be taken out of the container
APP. 80
07.12.31
since contents are seen and can be counted

through the transparent plastic bag. For
deposits at BSP Regional Offices/Branches,
the bundles of currency notes shall be
returned by the authorized bank
representative to the containers, duly
sealed with the depositor banks logo and
padlocked with the key/s controlled by the
said representatives.
l. The CD/Regional Office/Branch
shall schedule piece-by-piece verification
of cash deposits at a later date or whenever
it deems necessary, to be duly witnessed
by the banks authorized representatives.
m. The CD/Regional Offices/Branches
of BSP may refuse acceptance of cash
deposits that do not conform to the
foregoing guidelines and procedures.
CURRENCY WITHDRAWALS
n. The BSP shall service cash
withdrawals of banks from their respective
unverified fit currency deposits and/or from
verified/new currencies in stock.
o. Only authorized representative of
the depositor-bank shall open the sealed
container(s) of unverified fit currency note
deposits from which the BSP shall service
the cash withdrawal of the same bank. It is
understood that said representative shall
have all the keys to the containers padlock
of the banks currency fit note deposits
whenever assigned to BSP CD/Regional
Office/Branch to effect cash withdrawals.
p. At BSP CD, cash withdrawals of
banks shall be effected using the Electronic
Cash Withdrawal System. A Cash Order Slip

(COS), shall be sent by banks through FAX
to CD not later than 12:00 noon one (1)
day prior to actual cash withdrawal. Cash
withdrawal shall be settled through the
PhilPaSS before release of the cash
withdrawal to banks.
q. At the BSP Regional Offices/
Branches, cash withdrawal shall be made
using the Integrated Regional Information
System (IRIS). BSP demand deposit checks
presented by banks for withdrawal after
12:00 noon shall be accepted for processing
purposes only and the servicing thereof shall
be effected the following banking day.
r. The authorized representative of
the withdrawing bank shall conduct:
(1) bag/bundle/package count of the
notes and bag count of the coins withdrawn
from the banks unverified fit currency note/
coin deposits; and
(2) box/bundle/package/piece count of
the notes and bag count of the coins
withdrawn from reissued/new currency
note/coin witnessed by authorized
representative of the BSP.
Any overage/shortage found in the
verification of cash withdrawn from
reissued currency verified by BSP CD/
Regional Office/Branch shall be for the
account of BSP. The BSP shall not honor
any shortage/overage found after the
authorized bank representatives shall have
left the BSP tellers counter/cash withdrawal
area.
APP. 81
08.12.31
APPRAISAL AND LOAN VALUATION FRAMEWORK

FOR RIGHTS-BASED SECURE TENURE ARRANGEMENTS
AS COLLATERAL SUBSTITUTES
In the appraisal of real properties or
rights offered as collateral substitutes
under the housing microfinance
program, the form of the secure tenure
instrument must be considered. Generally,
two (2) appraisal methodologies or
approaches may be applied: the market
value must be determined using the
market data or sales comparison
approach for properties under freehold
and right to occupy and/or build (in
respect of the housing unit or
improvement to be used as collateral
substitute), and for properties under
Lease agreement and usufruct, the
value of the Leasehold interest of the
borrower must be determined.
Market value
Market value is the most probable
price that a property should obtain in a
competitive and open market under all
conditions requisite of a fair sale, with
the buyer and seller each acting
prudently and knowledgeably, and
assuming that the price is not affected
by undue stimulus. In determining the
market value of the property, the
appraiser must use the Market Data or
Sales Comparison approach. This
approach attempts to compare the
subject propertys value with similar
properties and adjust its value according
to the presence or absence of value
determining characteristics. This
approach is based upon the principles of
supply and demand and upon the
principle of substitution.
Valuation of leasehold
A leasehold is the real right of the lessee
acquired from an owner (the lessor) of a piece
of real estate to occupy and use it for a fixed
term or period at a stipulated rental rate, and
subject to conditions set forth in a written
document of lease. The lease may include
the right of the lessee to improve the land,
mortgage the building, sublet all or part of
the property, and assign or sell his leasehold.
The task of the appraiser is to estimate
the present worth or market value of the
imputed rental income of the lessee derived
from the property over and above the rent
required to be paid by him to the lessor under
the terms of the lease and his interest in any
improvements made by him. In evaluating a
leasehold, the appraiser must have a thorough
knowledge of all the salient terms and
conditions of the primary or main lease and
any subleases, for these affect the value of
the leasehold considerably, such as:
a. Rental. If the rental to be paid under
the terms of the lease is below the rental
prevailing in the market, the leasehold may
have a substantial value. Where the rental
actually paid is the prevailing rental value
of the property, the leasehold may have no
value. Prevailing rental rates refer to the
rental rates of comparable properties within
comparable locations.
b. Term of Lease. A long-term lease
or the right of the lessee to renew the lease
at the expiration of the original term of the
lease may add value to the leasehold.
c. Payment for Improvement
d. Option to Purchase
e. Leasehold Restrictions
APP. 81
08.12.31
Loan Valuation Based on Appraisal

Valuation Framework or Methodology
The valuation of properties under the
housing microfinance loan program will be
based on prevailing market values of real
estate properties (freehold and right to
FORM OF SECURE
TENURE OR
PROPERTY RIGHT
Usufruct
NATURE AND
DESCRIPTION OF
ACCEPTABLE
INSTRUMENT
Usufruct agreement or
contract Duly executed
contract executed by the
owner of the property
granting the usufructuary/
beneficiary/ client the right
to use, possess, and
enjoy the real property
including its fruits and other
rights or benefits
occupy and/or build) or prevailing rental rates

(leasehold/usufruct). The standard practice of
participating banks in determining the loan
to collateral ratios shall be adopted.The
following terms provided in the table below
may be applied:
TERMS AND
CONDITIONS
APPRAISAL
METHODOLOGY
LOAN VALUATION
The Term of Lease must

not be less than the term
of the loan.
Valuation of Leasehold
Interest

value of the collateral
Lease
Lease agreement or
contract Duly executed
contract granting the
lessee the right to use and
possess the real property
for a fixed long-term
period in consideration of
rental payments
The Term of Lease must

not be less than the term
of the loan
Valuation of Leasehold
Interest

Freehold
OCT/TCT Torrens title

issued by the Register of
Deeds evidencing
absolute ownership of real
property
Adjustment of appraisal
value due to documentary
nature or status of
instrument must be taken
into account
Market Data Approach

Interim Title, Contract to

Sell or Conditional Sale
Duly executed contract or
other legal instrument
issued by the appropriate
government agency
indicating full payment for
the purchase of the
property or its conditional
sale or conveyance to be
perfected upon full
payment of the purchase
price and/or the fulfillment
of other conditions
APP. 81
08.12.31
FORM OF SECURE
TENURE OR
PROPERTY RIGHT
Right to occupy and/or
build
NATURE AND
DESCRIPTION OF
ACCEPTABLE
INSTRUMENT
(1) Certification validly
issued by the appropriate
government agency
stating that the borrower/
client has the right to
occupy, build and/or
acquire the property he/
she is possessing being
an eligible beneficiary of
a public or private social
housing program or a
Presidential proclamation,
or (2) certification or
written acknowledgment
from the owner of the
property that the borrower/
client has the owners
consent and permission to
occupy and build on such
property
TERMS AND
CONDITIONS
Adjustment of appraisal
value due to documentary
nature or status of
instrument must be taken
into account
APPRAISAL
METHODOLOGY
Market Data Approach (as

to the improvement or
housing unit)
LOAN VALUATION

(MAB-2008-015 dated 19 March 2008)
APP. 82
08.12.31
FORMAT CERTIFICATION ON DEPOSIT/CASH DELIVERY SERVICES

Name of Bank
CERTIFICATION
We,
, Executive Vice President (or its equivalent
position) and
, Compliance Officer, certify that the (Name
of Bank) shall render deposit pick-up/cash delivery services beyond regular banking hours/
days to the following clients:
Servicing Banking
Unit1/
Client Name and

Address2/
Deposit Pick-up/Cash Delivery services

Days
Hours
1/ The name of the branch or banking unit that will render the Deposit Pick-up/Cash Delivery Services
2/ Name and address of client requesting deposit pick-up/cash delivery services
We further certify that in the performance of deposit pick-up/cash delivery services to the
above clients, the (Name of Bank) shall comply with all the conditions provided under
Section X266 of the Manual of Regulations for Banks on Deposit Pick-up/Cash Delivery
Services.
This certification executed on
the requirements of abovementioned regulation.
is being submitted in compliance with
Signed:
Signed:
(Name of Executive Vice President)

Position:
Subscribed and sworn to before me, this
their valid identifications indicated below:
Name
(Name of Compliance Officer)

Position:
day of
Government ID/Passport No.
, affiants exhibiting
Date/Place Issued
Notary Public
(Circular No. 614 dated 14 July 2008)
APP. 83
08.12.31
BASIC STANDARDS IN THE ADMINISTRATION OF TRUST, OTHER FIDUCIARY

AND INVESTMENT MANAGEMENT ACCOUNTS
I. Introduction
Trust and other fiduciary business and
investment management activities have
evolved with the changes in the financial
market and advancement in technology.
These innovations have allowed trust
entities to expand the scope of trust
products and services offered to customers,
thus increasing their exposure to various
risks. As trust entities grow more diverse,
necessarily policies and procedures as well
as risk management practices must keep
pace. The basic standards would provide
common processes for an efficient
operation and administration of trust, other
activities across the trust industry.
It is the policy of the BSP to provide
adequate level of protection to investors
who, under a fiduciary arrangement,
engage the services or avail of products of
trust entities which are required to observe
prudence in the exercise of their fiduciary
responsibility. Along this line, the BSP
prescribes basic standards for the efficient
administration and operation of trust and
management activities.
III. Standards
The basic standards in the administration
of trust, other fiduciary and investment
management accounts are meant to address
the significant areas of operations and provide
minimum set of requirements and
procedures:
A. Account acceptance and review
processes
1. Pre-acceptance account review
This review must document that the
trust entity (TE) can effectively administer
the account. It shall be covered by a written

policy which shall contain, among other
things, the types of trust, other fiduciary and
investment management accounts that are
desirable and consistent with the TEs risk
strategies and the specific conditions for
accepting new accounts, and approved by
the Trust Committee, or the Trust Officer,
or subordinate officer of the trust
department, authorized by the board of
directors or its functional oversight
equivalent, in the case of foreign banks and
institutions.
The review process entails the
thorough and complete review of the
clients/accounts characteristics and
investment profile, including the assets/
properties to be contributed/delivered.
Non-financial/non-traditional assets (i.e.,
real estate and the like) which are more
likely to be iliquid shall be carefully
reviewed prior to acceptance to ensure that
the TE only accepts accounts which hold
assets it may be able to properly manage.
Prior to the acceptance of a fiduciary
account, the TE shall review the underlying
instrument (trust agreement or contract)
for potential conflicts of interest. If such
conflict exists, the TE shall take
appropriate action to address such
condition before the account is accepted.
In cases where the TE is chosen as a
successor trustee or investment manager,
the TE shall perform a review and
evaluation of all assets to be delivered to
the TE to determine how these would serve
the client's objectives, whether the TE can
properly handle such assets and to assess
any possible issue/problem which may
arise with respect to such assets before
acceptance of such assets and/or
assumption of the trust, fiduciary or
investment management relationship.
APP. 83
08.12.31
2. Establishment and post-acceptance

review
Acceptance policies for new accounts
shall, at a minimum, include the following
processes and/or requirements:
(1) Account opening process. This
process defines the TEs policies and
procedures for client/account identification,
consistent with the TEs KYC policy for
compliance with anti-money laundering
regulations; identification of the needs of
the client; the objective(s) of the
engagement; the vehicle to be used; and
the accounts investment parameters. The
trust officer or other authorized personnel
of the trust department shall conduct the
account opening process for trust, fiduciary
and investment management accounts. In
the case of UIT Funds, only authorized
branch managers/officers as well as UIT
marketing personnel, who have all
successfully undergone the required
certification/accreditation/licensing
process, may perform said process for UIT
Fund clients. The account opening process
shall at least involve the following:
a. Client profiling shall be performed
for all UIT Fund and regular trust, other
accounts (except court trusts) via a duly
acknowledged
Client
Suitability
Assessment (CSA), which aims to provide
the TE with information leading to the
prudent design of investment packages,
suited to a particular client or investment
account. The profiling process, to be
documented through a CSA Form signed
by the concerned parties 1 , shall be
undertaken on a per client basis, which
shall emphasize the level of risk tolerance
of the client.
Client suitability assessment
The TE shall obtain adequate
information from the client to determine
the appropriateness of the fiduciary product/
service to be provided and ensure the
suitability of the investment product/
portfolio/strategy to be recommended to
each client. It shall provide prospective
clients with client suitability questionnaire
and require them to accomplish the same
prior to the acceptance of the account and
execution of a transaction.
For this purpose, the TE shall make an
assessment of the clients level of financial
sophistication and consider factors relevant
to the creation and management of, or
participation in, an investment portfolio,
such as but not limited to, the specific
needs and unique circumstances of the
client and/or beneficiary/(ies), basic
characteristics of the clients investment
and experience, financial constraints, risk
tolerance, tax considerations and regulatory
requirements.
The same client suitability assessment
process shall be applied by the TE for
directional accounts.
Minimum information required for
CSA:
i. Personal/Institutional data. Minimum
personal/institutional information that are
unique to a natural or juridical client, which
shall also cover demographics and KYC
information; the identity of beneficiaries,
where applicable, and approximate portion
of total assets administered/managed.
ii. Investment objective. A clear
statement or definition of the clients
investment goals/purposes to be achieved
through a particular trust, fiduciary or
investment product or service. The client
may opt to open several accounts, each one
with specific investment objectives
separate and distinct from the other
accounts.
iii. Investment experience. A list of
various types of investment the prospective
client is familiar with, acquired from actual/
personal investment experience, or of
similar investment circumstances.
iv. Knowledge and financial situation.
For complex transactions where the level
of risk involved is greater, the TE must take
i.e., the client, the UIT accredited marketing personnel or the officer of the trust department conducting the client
profiling. The CSA Form shall be acknowledged or confirmed by the trust officer or other officer of the trust department
autorized by the board of directors.
APP. 83
08.12.31
into account the knowledge, experience

and financial situation of the client or
potential client to assess the level of
investment sophistication. This may
include the careful assessment whether the
specific type of financial instrument/service/
portfolio/strategy is in line with the clients
disclosed financial capacity.
Such assessment is necessary as there
are significant risks involved on financial
investments (e.g., derivatives), the type of
transaction (e.g. sale of options), the
characteristics of the order (e.g., size or price
specifications) or the frequency of the trading.
v. Investment time frame and
liquidity requirement. The TE is able to
organize the portfolio in a manner that will
provide for anticipated liquidity
requirement through redemption of
principal contribution or earnings.
vi. Risk tolerance. Allow the TE to
classify clients in accordance with its own
pre-set internal risk classification.
Based on the results of the CSA,
classification of clients by the TE may include,
but need not be limited to the following:
i. Conservative. Client wants an
investment strategy where the primary
goal is to prevent the loss of principal at
all times, and where the client prefers
investment grade and highly liquid assets,
government securities, Republic of the
Philippines' bonds (ROPs), deposits with
local banks/ branches of foreign banks
operating in the Philippines, and deposits
with FIs in any foreign country: Provided,
That said FI has at least an investment grade
credit rating from a reputable international
credit rating agency. For purposes of
investing in a UIT Fund, a client wants an
investment strategy where the primary
objective is to prevent the loss of principal
at all times and where the fund is invested
in deposits with local banks/branches of
foreign banks operating in the Philippines
and with FI in any foreign country:
Provided, That said FI has at least an
investment grade credit rating from a

reputable international credit rating agency.
ii. Moderate. Client wants a portfolio
which may provide potential returns on
investment that are higher than the regular
traditional deposit products and client is
aware that a higher return is accompanied
by a higher level of risk. Client is willing
to expose the funds to a certain level of
risks in consideration for higher returns.
iii. Aggressive. Client wants a portfolio
which may provide appreciation of capital
over time and client is willing to accept higher
risks involving volatility of returns and even
possible loss of investment in return for
potential higher long-term results.
Investment policy statement
The TE shall have in place a method
by which suitability of investment is
determined based on the results of the CSA
and formulated via an Investment Policy
Statement (IPS). It shall communicate to
prospective clients the results of the
assessment, recommend the investment
product/portfolio/strategy, and explain the
reasons why, on the basis of the given
information, its recommendation is to the
best interest of the client as of a defined
timeframe.
The TE shall make a
recommendation only after having
reasonably determined that the proposed
investment is suitable to the clients and/or
beneficiarys financial situation, investment
experience, and investment objectives.
The IPS is a clear reference frame for
investment decisions and must be based
on the investment objectives and risk
tolerance of the client. It must include, at a
minimum, a description of the following:
i. Investment objective;
ii. Investment strategy-indicating how
assets will be allocated indicating the
agreed portfolio mix;
iii. Investment performance review
indicating proposed market benchmarks, if
any and the desired frequency of the
performance review/reporting;
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08.12.31
iv. Investment limits identifies any

limitation which the client may have for
the portfolio such as investment restrictions
(e.g., prohibited investments) and clients
consent for taking losses.
For UIT Fund, the IPS is equivalent to
the investment objective of the fund
specifically stated in the Declaration of Trust.
Option of client to reclassification

Generally, the TE shall recommend the
investment product/portfolio/strategy
suitable to the client based on the results
of the CSA. The TE may, however, provide
a process for allowing clients to invest in
investment products/ portfolio/strategy with
a higher risk than those corresponding to
the CSA profile results. A client who
exercises the option to be re-classified
outside the CSA process thereby waives
some of the protection afforded by these
guidelines. Such re-classification may be
allowed subject to the observance of the
following:
i. The client shall state in writing to
the TE that
He does not agree with or accept
the recommendation of the TE on the
investment product/portfolio/strategy
appropriate to the clients profile based on
the results of the CSA;
He would like to avail of the

investment product/portfolio/strategy other
than that which is consistent with the results
of the CSA;
He requests/intends to be reclassified, either generally or in respect to

a particular investment/service/ transaction/
product; and
He fully understands and is willing

to take the risks incidental to the
investment product/portfolio/strategy to be
availed of.
ii. The TE shall issue a clear written
warning to the client of the protections he
may lose and conversely, of the risks that
he is exposed to.
iii. The TE shall have taken all
reasonable steps to ensure that the client
meets all relevant requirements as

provided for in the TEs written policies.
Frequency of CSA and IPS

i. The CSA shall be performed and
the IPS shall be formulated and executed
prior to the opening of the account;
ii. The TE shall update the CSA and
the IPS at least every three (3) years except
in the following instances;
Whenever
updates
are
necessitated by the client, upon notice/
advise to the TE, on account of a change in
personal/financial circumstances or
preferences, the TE shall adjust/modify its
investment strategy/portfolio and
recommendation, subject to the conformity
of the client;
Whenever managed trust, other

fiduciary, and investment management
accounts express intention to invest in
complex investment products such as
financial derivatives, the TE shall ensure
that the CSA and the IPS are updated at
least annually. Otherwise, the TE shall not
make new/additional investments in
complex investment products.
iii. The TE shall ensure that periodic
written notices given to clients reminding
them of such updates are received/
acknowledged by clients or their
authorized representatives;
iv. Updated CSA and IPS shall be
acknowledged by the client;
v. The frequency of review shall be
included as a provision in the written
agreement; and
vi. The latest CSA and IPS will
continue to be applied for any subsequent
principal contributions to the account, until
these are amended or updated by the
client.
b.
Identification of degree of
discretion granted by client to the TE. This
process involves the determination of the
extent of discretion granted to the TE to
manage the clients portfolio.
1) Discretionary. The TE has authority
or discretion to invest the funds/property
APP. 83
08.12.31
of the client in accordance with the

parameters set forth by the client. Such
authority of the TE which obtained a
composite Trust Rating of 4 in the latest
BSP examination will not be subject to the
investment limitations provided under
Subsecs. X409.2 and X409.3 for trust and
other fiduciary accounts and Subsecs. X411.4
and X411.5 for investment management
accounts, respectively; and
(2) Non-discretionary. Investment
activity of the TE is directed by the client
or limited only to specific securities or
properties and expressly stipulated in the
agreement or upon written instruction of
the client.
(3) Documentation. The trust, fiduciary
or investment management relationship
shall be formally established through a
written legal document such as the trust or
investment management agreement. The
engagement documents shall clearly
specify the extent of fiduciary assignments/
responsibilities of the TE and articulate the
nature and limits of each partys status as
trustor/principal or trustee/agent. Policies
and procedures shall provide that trust or
investment management agreements are
signed by the trust officer or , subordinate
officer of the trust department, or in the
case of UIT Funds, branch managers/
officers duly authorized by the board of
directors.
The documentation process must also
consider the following:
a. The Agreement must conform to
the requirements provided under Subsec.
X409.1 for trust and other fiduciary accounts
and Subsec. X411.1 for investment
management accounts. In addition, the
Agreement shall contain the following
provisions:
i. A description of the services to be
provided;
ii. All charges relating to the services
or instruments envisaged and how the
charges are calculated;
iii. The obligations of the client with

respect to the transactions envisaged, in
particular his financial commitments
towards the TE; and
iv. For engagements involving
management of assets or properties, the
degree of discretion granted to the trustee
or agent must be clearly defined and stated
in the agreement;
b. The Agreement shall be in plain
language understandable by the client and/
or personnel of the TE responsible for
explaining the contents of the agreement
to the client.
c. For complex investment products
such as financial derivatives instruments or
those that use synthetic investment
vehicles, the TE shall disclose to the client
and require clients prior written conformity
to the following:
i. Key features of investment services
and financial instruments envisaged,
according to the nature of such instruments
and services;
ii. The type(s) of instruments and
transactions envisaged;
iii. The obligations of the TE with
respect to the transactions envisaged, in
particular, its reporting and notice
obligations to the clients; and
iv. An appropriate disclosure bringing to
the clients attention the risks involved in
the transactions envisaged.
d. In order to give a fair and adequate
description of the investment service or
financial instrument, the TE shall provide a
clearly stated and easily understood Risk
Disclosure Statement to its clients, which
forms part of or attached to the trust, fiduciary
or investment management agreement.
The Risk Disclosure Statement shall
contain, among other things, the following
provisions:
i. Cautionary statement on the
general risks of investing or associated with
financial intruments, i.e., if the market is
not good, an investor may not be able to
APP. 83
08.12.31
get back his principal or original

investment. Such statement must be given
due prominence, and not to be concealed
or masked in any way by the wording,
design or format of the information
provided;
ii. If the investment outlet is exposed
to any major or specific risks, a description
and explanation of such risks shall be clearly
stated; and
iii. Advisory statement that for
complex investment products, said
instruments can be subject to sudden and
sharp falls in value such that the client may
lose its/his entire investment, and,
whenever applicable, be obligated to
provide extra funding in case it/he is
required to pay more later.
Additional risk disclosures may be
provided as appropriate.
The TE must ensure that the trust,
agreements and documents have been
reviewed and found to be legally in order.
B. Account administration
It is the fundamental duty of a fiduciary
to administer an account solely in the
interest of clients. The duty of loyalty is a
paramount importance and underlies the
entire administration of trust, other fiduciary
and investment management accounts. A
successful administration will meet the
needs of both clients and beneficiaries in a
safe and productive manner.
Account administration basically
involves three processes, namely;
(1) periodic review of existing accounts,
(2) credit process and (3) investment
process.
(1) Periodic review of existing accounts
The board of directors and Trust
Committee shall formulate and implement
a policy to ensure that a comprehensive
review of trust, fiduciary and investment
management accounts (including collective
investment schemes such as UIT Funds)
shall be conducted. The periodic review
of managed accounts shall be aligned with

the provisions on the review and updating
of the CSA and IPS. The board of directors
may delegate the conduct of account
review to the Trust Officer or Trust
Department Committee created for that
purpose. The policy shall likewise indicate
the scope of the account review depending
upon the nature and types of trust, fiduciary
and investment management accounts
managed.
A comprehensive accounts review,
which shall entail an administrative as well
as investments review, shall be performed
on a periodic basis to ascertain that the
account is being managed in accordance
with the instrument creating the trust and
other fiduciary relationship.
The
administrative review of an account is
taken to determine whether the portfolio/
assets are appropriate, individually and
collectively, for the account, while an
investment review is used to analyze the
investment performance of an account and
reaffirm or modify the pertinent investment
policy statement, including asset allocation
guidelines. Whether the administrative
and investment review are performed
separately or simultaneously, the
reviewing authority shall be able to
determine if certain portfolio/assets are no
longer appropriate for the account, (i.e., not
consistent with the requirements of the
client) and to take proper action through
prudent investment practices to change the
structure or composition of the assets.
The periodic review process also
involves disclosure of information on the
investment portfolio and the relevant
investing activities. Regardless of the degree
of discretion granted by the client to the TE,
the former assumes full risk on the investment
and related activities, and counterparties.
Relevant changes in the TEs organization or
investment policies that may affect the clients
decision to continue the services of the TE
shall be disclosed to the client.
APP. 83
08.12.31
In the case of non-discretionary public

interest accounts such as employee
benefit/retirement or pension funds, due
diligence review of the investment
portfolio by the TE shall include providing
investors with appropriate information
needed to make an informed investment
decision and avoid possible conflict of
interest and self-dealing situations.
The TE should be able to show (in
addition to the specific written directive
from the client) what it has done in the
exercise of due diligence and prudence on
its part to protect the interest of the client
and/or beneficiaries, especially for
accounts of public interest like retirement/
pension fund accounts.
The TE shall keep its clients informed
of the investment and related activities by
rendering periodic reports and financial
statements prescribed under Subsec.
X425.1 and as necessary. The types of
reports and statements and the frequency
of their submission must be clearly
specified in the TEs written policies and
procedures.
The TE shall also establish a system that
enables a trust account representative or
officer to periodically contact clients
and/or beneficiaries to determine whether
their financial objectives and circumstances
have changed.
(2) Credit process
Each trust entity shall define its credit
process in relation to the discharge of the
TEs investment function. The process
ensures credit worthiness of investment
undertakings including dealings and
relationship with counterparties. It also
serves to institutionalize the independence
of the credit process of the TE. The credit
process must at least cover the following:
a. Credit policies. Trust entities must
clearly define its credit policies and
processes, including the use of internal and
external credit rating and approval process
relative to the delivery of its instrument
function. The TE can share credit

information with the bank proper subject
to proper delineation and documentation.
The credit process shall show the following
at the minimum:
i. Clear credit process flow, from
initiation of the lending activities
envisioned by the TE up to the execution
of actual investment;
ii. Credit criteria and rating used;
iii. Manner by which the TE handles
the information, including confidential and
material data, which is shared between and
among the departments, subsidiaries or
affiliates of the TE; and
iv. Clear delineation of duties and
responsibilities of each of the departments,
subsidiaries and affiliates of the TE, where
such groups or entities share the credit
process.
b. Counterparty accreditation process.
The TE must clearly define the policies and
the processes it will undertake to accredit
counterparties, including the bank proper,
and its subsidiaries and affiliates, for their
investment trading functions. It may use or
avail itself of the accreditation process of its
bank proper provided there is proper
delineation of functions. The counterparty
accreditation process shall show the
following at the minimum:
i. Clear accreditation process flow
from the initiation of credit activities up to
the actual usage of lines;
ii. Credit criteria and rating used;
iii. Manner by which the TE handles
the information, including confidential and
material data, which are shared between
and among the departments, subsidiaries
or affiliates of the TE;
iv. Usage, duties and responsibilities
of each of the department, subsidiaries and
affiliates of the TE, where there is sharing
of credit lines between and among these
concerned groups/ entities; and
v. Clear delineation of duties and
responsibilities of each of the departments,
APP. 83
08.12.31
subsidiaries and affiliates of the TE, where

such groups or entities share the
accreditation credit process.
(3) Investment process
This process defines the investment
policies and procedures, including
decision-making processes, undertaken by
the TE in the execution of its fund/asset
management function. The primary
objective of such process is to create a
structure that will assure TEs observe
prudence in investment activities at all levels,
preservation of capital, diversification, a
reasonable level of risk as well as
undivided loyalty to each client and
adherence to established structure for the
TEs investment undertakings. The
investment process covers a broad range
of activities; thus, the investment policies
shall clearly outline the parameters that, at
a minimum, include the following:
a. Overall investment philosophy,
standards and practices. A general
statement of principles that guides the
portfolio manager in the management of
investments outlined in the board-approved
policy, along with a discussion on the
practices and standards to be implemented
to achieve the desired result.
b. Investment Policies and Processes.
Defines the policies and the processes
undertaken to create the portfolio to ensure
the proper understanding of the clients
preferences.
i. Profiling of client. Aims to
understand the level of maturity of the
client relevant to the creation of an
appropriate portfolio.
ii. Portfolio construction for custommade portfolios. Includes the process of
researching and selecting recommended
portfolio and setting objectives or strategies
for diversification by types and classes of
securities into general and specialized
portfolios.
Asset allocation. Outlines the
process and criteria for selecting and
evaluating different asset classes identified
to be appropriate for the clients profile and

investment objective. It includes the
allocation of desired tenors in conjunction
with the client or portfolio profile based
on the CSA or IPS. The asset allocation
may be based on percentage to total
funds managed by the TE or stated in
absolute amount whichever is preferred
by the client.
Security selection. Policies and

procedures on the selection of investment
outlets, including investment advisory, must
be in place. This involves the selection of
issuers for each of the identified asset
classes. The process provides for the
review of investment performance using
risk parameters and comparison to
appropriate benchmarks. It shall also
identify the documentation required for all
investment decisions.
If the TE uses approved lists of
investments, there shall be an outline of
the criteria for the selection and monitoring
of such investments, as well as a description
of the overall process for addition to and
deletion from the lists.
Benchmark selection/creation.
Selects or crafts the benchmarks to reflect
the desired return of the portfolio and to
measure the performance of the portfolio
manager. The TE shall be required to
measure performance based on benchmarks
to gauge or measure the performance of the
account. The TE must have clear definition
of its benchmarking policy.
Limits. Identifies any limitations on

portfolio management which the client may
impose on the TE. These limitations have
to be specific as to the nature of the portfolio,
such as but not limited to, core holdings,
investment in competitor companies, and
companies engaged in vices.
Risk disclosure statement. A clear

and appropriately worded statement/s to
disclose different risks to clients of the
various investment undertakings of the
investment manager done in behalf of the
client.
APP. 83
08.12.31
iii. Internal policies on trade allocation.

Defines the institutions policies in ensuring
timely, fair and equitable allocation of
investments across investing portfolios.
iv. Diversification of discretionary
investments. The TE shall have a policy
on the general diversification requirements
for asset administration, as well as the
process implemented to monitor and
control deviations from policy guidelines.
v. A TE shall have access to timely
and competent economic analyses and
forecasts for the capital markets and other
products in which its clients will be
investing. TEs engaged in more complex
transactions may consider providing an
economic and securities research unit that
continually monitors global trends and
capital markets. This unit provides
necessary forecasts of capital market
expectations, currency relationships,
interest rate movements, commodity
prices, and expected returns of asset
classes and individual investment
instruments, which help the TE establish
appropriate investment policies and
strategies, select appropriate investments,
and manage risks effectively.
vi. The TE shall have a process that
will confirm trust personnel with
investment functions know and follow the
BOD-approved investment policies and
processes.
c. Selection and use of brokers/
dealers. The quality of execution is an
important determinant in broker selection.
In selecting brokers/dealers, a TE must
consider the following minimum standards
and criteria:
i. Execution capability and ability to
handle specialized transactions;
ii. Commission rates and other
compensation;
iii. Financial strength, including
operating results and adequacy of capital
and liquidity;
iv. Past record of good and timely
delivery and payment on trades;
v. Value of services provided,

including research; and
vi. Available information about the
broker from other broker customers,
regulators, and self-regulated organizations
authorized by the SEC.
The TE with large portfolio may opt to
evaluate broker performance using a
formalized point scoring system. A list of
approved brokers shall be made available
by the TE, reviewed periodically and
updated at least annually.
d. Best practices. The TE shall
document best practices policies and
processes to institutionalize proper
safeguards for the protection of its clients
and itself. At a minimum, the policies must
include the following standards:
i. Best execution. The TE shall use
reasonable diligence to ensure that
investment trades are executed in a
timely manner and on the best available
terms that are favorable to the client
under prevailing market conditions as
can be reasonably obtained elsewhere
with an acceptable counterparty. For
related counterparties, no purchase/ sale
must be made for discretionary accounts
without considering at least two (2)
competitive quotes from other sources. The
policy on best execution must document
processes to warrant such execution is
readily and operationally verifiable.
ii. Chinese wall. A clear policy on
Chinese Wall aims to protect the institution
from conflict of interest arising from
varying functions carried by the TE in
relation to credit (debt), shareholder, and
investment position taking. The policy
shall state the duties and responsibilities
of the TE and each department including
that of the bank proper and subsidiaries
and affiliates should transactions involve
the concerned departments and entities.
iii. Personnel investment policies.
These policies aim to ensure honest and
fair discharge of investment trading
functions of all qualified personnel.
APP. 83
08.12.31
Qualified personnel are those that may

have access to information on clients and
investment position-taking of clients,
investment manager or portfolios. The use
of such information may be abused and
detrimental to the clients. The policy shall
state the duties and responsibilities of each
qualified personnel in relation to trading
and portfolio management activities
including allowed and not allowed
transactions as well as sanctions in case of
violations.
iv. Confidentiality and materiality of
Information. The TE must keep information
about past, current and prospective clients
confidential, unless disclosure is authorized
in writing by the client or required by law
and the information involve illegal
activities perpetrated by the client. It must
ensure safekeeping of confidential and
material information and prevent the abuse
of such information to the detriment of the
institution or its clients.
v. Fair dealing. The TE shall
document dealing practices to ensure fair,
honest and professional practices in
accordance with the best interest of the
client and counterparties at all times and
for the integrity of the market. It must
ensure that any representations or other
communications made and information
provided to the client are accurate and not
misleading. The TE must also take care
not to discriminate against any client but
treat all clients in a fair and impartial
manner.
vi. Diligence and reasonable basis. In
conducting its investment services, the TE
shall act with skill, and care and diligence,
and in the best interests of its clients and
the integrity of the market. The duty of
due diligence is intertwined with the duty
to maintain independence and objectivity
in providing investment recommendations
or taking investment actions. When
providing advice to a client, the TE shall
act diligently and make certain that its
advice and recommendations to clients are

based on thorough analysis and take into
account available alternatives.
The TE shall take all reasonable

steps to execute promptly client orders in
accordance with the instruction of clients.
The TE, when acting for or with

clients, shall always execute client orders
on the best available terms.
The TE shall ensure that

transactions executed on behalf of clients
are promptly and fairly allocated to the
accounts of the clients on whose behalf the
transactions were executed.
Where a client opts not to accept the
recommendation of the TE and chooses to
purchase another investment product
which is not recommended, the TE may
proceed with the clients request/
instruction, provided it shall document the
decision of the client and highlight to him/
her that it is his/her responsibility to ensure
the suitability of the product selected.
vii. In-House or related party
transactions handling. The TE shall define
the policies in handling related-interest
transaction to ensure that the best interest
of clients prevails at all times and all
dealings are above board. It must conform
to the requirements of Subsecs. X409.3 and
X411.5.
viii.Valuation. The TE shall document the
institutions valuation process to show the
sources of prices, either market or historical
value, and the formula used to derive the
NAV of investment portfolios. Valuation
shall be understood, compliant with written
policies and operating procedures, and
used consistently within the TE. The TE
must ensure that the valuation processes
of service providers, custodians, and other
subcontractors are compatible with those
of the TE and in compliance with relevant
statutory or regulatory valuation standards.
Risk officers shall document the
accuracy and reliability of all valuation
processes and data sources and ensure that
APP. 83
08.12.31
valuations are completed as required by

internal policies and procedures and
regulatory reporting standards.
e. Conflicts of interests. These may
arise when the TE exercises any discretion
where mutually opposing interests are
involved. The most serious conflict of
interest is self-dealing, which could
include transactions such as an
investment in related interests of the TE
or purchase of securities from or through
an affiliate. Such transactions must be
fully disclosed and authorized in writing
by clients. Because of the complexity
and sensitivity of the issue, a TE must
develop policies and procedures to identify
and deal with conflicts of interest situations.
3. Account termination
Accounts may be terminated for a
variety of reasons, including the
occurrence of a specified event or upon
written notice of either the client or the
TE. The trust or investment management
agreement shall provide for the terms and
manner of liquidation, return and delivery
of assets/portfolio to the client. Generally,
the TE's responsibilities include distribution
to the client, the successor trustee and/or
beneficiaries of the remaining assets held
under trusteeship/agency arrangement,
preparation and filing of required reports.

The TE must ensure the risk control
processes are observed when terminating
accounts just as when accepting them.
The TE must have a general policy with
respect to the termination of trust accounts,
which policy shall take into consideration
the general processes to be observed in the
return or delivery of different types of assets,
the possible modes of distribution, fees to
be paid, taxes to be imposed, the
documentation required to effect the transfer
of assets, the provision of terminal reports,
and whenever applicable, the timing of
distribution, needs and circumstances of
the beneficiaries. Should the TE anticipate
possible issues or problems with
respect
to the termination of the
account, such as the liquidation of certain
assets or the partition or division of assets,
these issues shall be disclosed to the client
for proper disposition. The policy on the
termination of trust, fiduciary and
investment management accounts shall
likewise include the approval process to
be observed for the termination of these
accounts as well as the reporting
requirements for accounts terminated and
closed.
(Circular No. 618 dated 20 August 2008)
GUIDELINES FOR DAYS DECLARED AS PUBLIC SECTOR HOLIDAYS

(Appendix to Secs. X207, X256 and X601.6)

Time of receipt
of Public Holiday
Announcement by
the BSP
1.
On
an
o r d i n a r y
business day
prior to the
date
of
effectivity
Treasury Department
Overnight RP/RRP
Trading Settlement
Term RP& RRP/GS/

SDA/RDA
Trading Settlement
Closed
Closed
No
change
in
trading
hours
No
No
change change in
in
trading
settlement
hours
time
Closed
Closed
PDS
Closed
PhilPASS
Closed
Cash Dept
Withdrawal
Closed
Reserve
Position
NonReserve
Auction
Closed
Sec. Mkt.
Closed
PCHC
Manila
Regional
No clearing; no To be decided in
s e t t l e m e n t . coordination with
PCHC will issue Head Office
an advisory to its
members that it
will continue
accepting and
processing checks
2.
On
a
Saturday or
Sunday to take
effect
the
following
Monday or on
a non-working
holiday to take
effect the next
business day
a. Under good
w e a t h e r
condition
Closed
Closed
Closed
Closed
Open
Closed
Open
Closed
Open
Closed
Reserve
NonReserve
Open
Closed
Open
Closed
Normal
To be decided in
coordination with
Head Office
s e t t l e m e n t . coordination with
PCHC will issue Head Office
an advisory to its
members that it
will continue
accepting and
processing checks
APP. 84
08.12.31
b . U n d e r
unfavorable
conditions such
as
bad
weather, (e.g.
Typhoon signal
no. 3), natural
calamities or
c i v i l
disturbances
No
change in
settlement
time
3. Before 9:00
a.m. on the date
of effectivity
Treasury Department
Term RP& RRP/GS/
SDA/RDA
Trading Settlement Trading
Settlement
Overnight RP/RRP
Closed
5. In case
suspension
work
extended
Day 2
a. Before
9:00am of
Day 2
PDS
PhilPASS
Cash Dept
Withdrawal
Reserve
Position
Auction
Sec. Mkt.
PCHC
Manila
Regional
No clearing; no
To be decided in
settlement. PCHC
coordination with
will issue an advisory
Head Office
to its members that
it will continue
accepting
and
processing checks
Closed
Closed
Closed
Closed
Closed
NonReserve
Closed
Closed
No
change in
trading
hours
No
change in
settlement
time
Open
Open
Open
Reserve
Open
Open
Normal
To be decided in
coordination with
Head Office
Resumed 9:01 a.m.

No
from 9:01
change in
to
a.m. to
trading
10:00
9:45 am
hours
a.m.
(for value
Day 1)
then,
4:45p.m. 4:45p.m.
to
to
5:30p.m. 5:45p.m.
for same
day
transaction
No
change
in
settlement
time
Open
Open
Open
Reserve
Open
Open
Normal
To be decided in
coordination with
Head Office
Closed
Closed
Closed
Closed
NonReserve
Closed
Closed
Closed
Day 1 Suspended
4. After
to be
9:00 a.m. on
resumed
the date of
the
effectivity
following
day at
9:01a.m.
to
9:45 a.m.
Day 2
of
of
is
to
Day 2
closed;
Day 1
transactions
will be
moved
to Day
3 ( for
value
Day 1)
Closed
Closed
settlement PCHC coordination with
will issue an Head Office
advisory to its
members that it
will continue
accepting and
processing checks
APP. 84
08.12.31
Time of receipt
of Public Holiday
Announcement by
the BSP
Time of receipt
of Public Holiday
Announcement by
the BSP

Treasury Department
Term RP& RRP/GS/
Overnight RP/RRP
SDA/RDA
Trading
Settlement
Trading
Settlement
Day 3 Resumed
from
9:01 a.m.
to
9:45 am
(for value
Day 1)
then,
4:45p.m.
to
5:30p.m.
for same
day
transaction
b. After
9:00 a.m.
of Day 2
PhilPASS
Cash Dept
Withdrawal
PCHC
Auction
Sec. Mkt.
Manila
Regional
No
change in
trading
hours
No
change in
settlement
time
Open
Open
Open
Reserve
Open
Open
Normal
To be decided in
coordination
with
Head
Office
No
change in
trading
hours
No
change
in
settlement
time
Open
Open
Open
Reserve
Open
Open
Normal
To be decided in
coordination with
Head Office
4:45p.m.
to
5:45p.m.
9:01 a.m.
to
10:00
a.m.
4:45p.m.
to
5:45p.m.
APP. 84
08.12.31
Day 2 Resumed
from
9:01 a.m.
to
9: 45 a.m.
(for value
Day 1)
then,
Day 2
transactions
suspended
to be
resumed
the
following
day from
9:01a.m.
to
9:45 a.m.
9:01 a.m.
to 10:00
am
PDS
Reserve
Position
Day 3
6. In case the
suspension of
work does not
apply to all
government
offices (Manila
Day, Quezon
City Day, etc.)

Treasury Department
Term RP& RRP/GS/
SDA/RDA
Trading Settlement Trading
Settlement
Overnight RP/RRP
Resumed
from
9:01 a.m.
to 9:45
am (for
value
Day 2)
then,
4:45p.m.
to
5:30p.m.
for same
day
transaction
9:01 a.m.
to 10:00
a.m.
No
No
change in change in
trading
settlement
hours
time
Auction
Sec. Mkt.
Manila
Regional
PDS
PhilPASS
Open
Open
Open
Reserve
Open
Open
Normal
To be decided in
coordination with
Head Office
Open
Open
Open
Reserve
Open
Open
Normal
To be decided in
coordination with
Head Office
4:45p.m.
to
5:45p.m.
No
4:45 p.m. 4:45 p.m.
to 5:30
to 5:45 change in
trading
p.m. for
p.m.
hours
same day
transaction
(M-2008-025 dated 13 August 2008)
Cash Dept
Withdrawal
PCHC
Reserve
Position
No
change in
settlement
time
APP. 84
08.12.31
Time of receipt
of Public Holiday
Announcement by
the BSP
ILLUSTRATIVE ACCOUNTING ENTRIES

I. Transfer of Net Realized Profits
E/FCDU Account Balances
Undivided
Profits/
(Losses)
To record net realized profits
Dr Asset/Liability
Cr
Income
100
To close net realized profits to Undivided Profits/(Losses)

Dr Income
Cr
Undivided Profits/(Losses)
100
Net
Due to RBU Unrealized
E/FCDU
Gains/(Losses)
Realized
Recognized in Losses from
Equity
Operations
Retained
Earnings Free1
Due to RBU E/FCDU

Unrealized
Due from
Losses
Recognized in Other Banks/
Profit or Loss Cash Inflow
(Outflow)
and in Equity
100
100
Balance as of year-end before transfer of net realized profits and

assets to RBU
To close Undivided Profits/(Losses) to Retained Earnings - Free - EFCDU
Dr Undivided Profits/(Losses)
100
Cr
Retained Earnings - Free - EFCDU
100
100
(100)
100
100
The undivided Profits/(Losses) shall be closed to Ratained Earnings - Free E/FCDU at the end of the calendar-fiscal year adopted by the bank pending
transfer of eligible assets to the RBU which shall be made within 1 month
after the end of the reference year
To transfer assets o RBU representing net realized profits
(100)
100
(100)
100
-
For branches of foreign banks the account to be used is Net Due to/from HO/Branches/Agencies Abroad
(100)
APP. 85
08.12.31
Dr Retained Earnings - Free - E/FCDU

100
Cr
Due from other Banks/Cash
The corresponding journal entry in the RBU for the transfer of net realized
profits from E/FCDU is as follows:
Dr Due from Other Banks/Cash
100
Cr
Retained Earnings - Free - RBU
Balance as of year-end after transfer of net realized profits and assets to RBU
APP. 85
08.12.31
II. Transfer of Net Realized Losses

Undivided
Profits/
(Losses)
Month 1 (M1)
To record M1 net realized losses
Dr. Expense
Cr.
Asset/Liability
To close M1 net realized losses to Undivided Profits/(Losses)
Dr. Undivided Profits/(Losses)
Cr.
Expense
Due to RBU E/FCDU

Realized
Losses from
Operations
10
10
10
(10)
10
Balance as of M1 before transfer of assets from RBU

To close transfer assets from RBU representing net realized losses
Dr. Due from Other Banks/Cash
Cr
Due to RBU - E/FCDU Realized Losses from Operations
Retained
Earnings Free1
Net Unrealized
Gains/(Losses)
Recognized in
Equity
Due to RBU E/FCDU

Unrealized
Due from
Losses
Profit or Loss Cash Inflow
(Outflow)
and in Equity
(10)
10
10
10
10
The Due to RBU - E/FCDU Realized Losses from Opearations shall not be subject
to E/FCDU cover requirements
Balance as of M1 after transfer of assets from RBU

Month 2 (M2)
To record M2 net realized losses
Dr. Expense
Cr.
Assets/Liability
To close M2 net realized losses to Undivided Profits/(Losses)
Cr
Expense
(10)
10
10
10
5
5
5
(5)
5

(15)
10

Undivided
Profits/
(Losses)
To transfer assets from RBU representing net realized losses
Cr
Retained
Earnings Free1
Due to RBU E/FCDU

Net
Due to RBU - Unrealized
Unrealized
Due from
E/FCDU
Losses
Gains/(Losses)
Other
Banks/
Realized
Recognized in
Recognized in Losses from Profit or Loss Cash Inflow
Equity
(Outflow)
Operations
and in Equity
5
5
Computation of amount to be transfered from RBU

Cumulative net realized losses from operations incurred from beginning of year
Amount to be transferred from RBU
15
10
5
The Due to RBU - E/FCDU Realized Losses from Operations

shall not be subject to E/FCDU cover requirements

Month 3 (M3)
To record M3 net realized profits
Dr. Asset/Liability
Cr.
Income
Balance as of M3 before settlement of excess

Due to RBU
15
15
15
15
3
3
3
3
(12)
APP. 85
08.12.31
To close M3 net realized profits to Undivided Profits/(Losses)

Dr. Income
Cr.
(15)
APP. 85
08.12.31

Undivided
Profits/
(Losses)
To settle express Due to RBU-E/FCDU Realized Losses from Operations
Dr. Due to RBU - E/FCDU Ralized Losses from Operations
Cr
Due from Other Banks/Cash
Retained
Earnings Free1
Net Unrealized
Gains/(Losses)
Recognized in
Equity
Due to RBU E/FCDU

Realized
Losses from
Operations
Due to RBU E/FCDU

Unrealized
Losses
Recognized in
Profit or Loss
and in Equity
Due from
Other Banks/
Cash Inflow
(Outflow)
(3)
3
(3)
Computation of amount to be settled to RBU

Cumulative net realized losses from operations incurred from beginning of year
Excess amount to be settled to RBU2
12
15
(3)
Whenever the balance of Due to RBU - E/FCDU Realized Losses from Operations
exceeds the cumulative net realized losses incurred from the beginning of the year
the excess shall be settled to the RBU.
2
Balance as of M3 after settlement of excess Due to RBU
(12)
12
12
Balance as of year - end before transfer of net realized losses to RBU
(12)
12
12
To close Undivided Profits/(Losses) to Due to RBU - E/FCDU Realized Losses

from Operations
Dr. Due to RBU - E/FCDU Realized Losses from Operations
Cr.
The corresponding journal entry in the RBU for the transfer of unrealized losses
from E/FCDU is as follows:
Dr. Retained Earnings - Free - RBU
Cr.
Due from E/FCDU - E/FCDU Realized Losses from Operations
12
(12)
12
12
12
12
Balance as of year-end after transfer of net realized losses to RBU

12
III. Transfer of Net Unrealized Gains/(Losses)

Dr.
Month 1 (M1)
Undivided Retained
Profits/ Earnings (Losses)
Free1
Cr.
Due to RBU E/FCDU

Net
Losses
Due from
Unrealized
E/FCDU
Gains/(Losses)
Realized
(Outflow)
Equity
Operations and in Equity
Case A
To record M1 MTM adjustment on derivatives

Dr. Gains/(Losses) on Financial Assets/Liabilities HFT
Cr.
Derivatives with Negative Fair Value HFT
20
To close net unrealized losses to Undivided Profits/(Losses)

Cr.
Gains/(Losses) on Financial Assets/Liabilities HFT
20
To record MTM adjustment on AFS Financial Assets

Dr. Net Unrealized Gains/(Losses) on AFS Financial Assets (Equity Account)
Cr
Accumulated Market Gains/(Losses) on AFS Financial Assets
(Contra Asset Account)
To transfer assets from RBU representing net unrealized losses
Cr.
Due to RBU - E/FCDU Unrealized Losses Recognized Profit or Loss
and in Equity
(20)
20
50
(50)
50
(20)
(50)
70
70
70
70
20
50
70
The Due to RBU - E/FCDU Unrealized Losses Recognized in Profit or Loss and in Equity
shall not be subject to E/FCDU cover requirements

1
(20)
(50)
70
70
APP. 85
08.12.31
Computation of amount to be transferred from RBU

Net Unrealized Gains/(Losses) from Operations (debit balance)
Net Unrealized Gains/(Losses) on AFS Financial Assets (debit balance)
Net Unrealized Losses (net debit balance)
20
APP. 85
08.12.31

III. Transfer of Net Urealized Gains/(Losses)
Dr.
Month 2 (M2)
To record M2 MTM adjustment on derivatives
Dr. Derivatives with Positive Fair Value HFT
Cr.
Gains/(Losses) on Financial Assets/Liabilities HFT
To close net unrealized gains to Undivided Profits/(Losses)
Dr. Gains/(Losses) on Financial Assests/Liabilities HFT
Cr.
To record MTM adjustment on AFS Financial Assets
Dr. Accumulated Market Gains/(Losses) on AFS Financial Assets
(Contra Asset Account)
Cr.
Net Unrealized Gains/(Losses) on AFS Financial Assets
(Equity Account)
Cr.
Due to RBU E/FCDU

Unrealized
Net
Due to RBU Due from
Losses
Unrealized
E/FCDU
Undivided Retained Gains/(Losses) Realized Recognized in Other Banks/
Profits/ Earnings - Recognized in Losses from Profit or Loss Cash Inflow
(Losses)
Free1
(Outflow)
Equity
80
80
80
80
30
30
-
(20)
70
70
70
Dr. Due to RBU - E/FCDU Unrealized Losses Recognized in Profit or Loss and in Equity
Cr.
Due from Other Banks/Cash
Computation of amount to be settled to RBU
Cumulative net unrealized losses recognized in profit or loss and in equity3
Due to RBU - E/FCDU Unrealized Losses Recognized in Profit or Loss and in Equity
Excess amount to be settled to RBU4
0
70
(70)
Computation of cumulative net unrealized losses recognized in

profit or loss and in equity
(1) Net unrealized gains from operations
(2) Net unrealized losses on AFS Financial Assets
Cumulative net unrealized gains
(60)
20
(40)
(70)
70
30
60
Balance as of M2 before settlement of excess due to RBU

To settle excess Due to RBU - E/FCDU Unrealized Losses
Recognized in Profit or Loss and in Equity
80
(70)
III. Transfer of Net Unrealized Gains/(Losses)

Dr.
Cr.
Due to RBU E/FCDU

Net
E/FCDU
Losses
Unrealized
Undivided Retained Gains/(Losses)
Realized
Recognized in
Profits/ Earnings - Recognized in Losses from Profit or Loss
(Losses)
Free1
Equity
Due from
Other Banks/
Cash Inflow
(Outflow)
Since the sum of items (1) and (2) results to net unrealized gains, cumulative
net unrealized losses is considered zero.
Whenever the Due to RBU - E/FCDU Unrealized Losses Recognized in Profit
or Loss and in Equity exceeds the cumulative net unrealized losses, the excess
shall be settled to the RBU
4
Balance as of M2 after settlement of excess Due to RBU
60
Balance as of year-end before closing Undivided Profits/(Losses) to Retained

Earnings - Free - E/FCDU
60
To close Undivided Profits/(Losses) to Retained Earnings - Free - E/FCDU

Cr. Retained Earnings - Free - E/FCDU
Balance as of year-end after closing Undivided Profits/(Losses) Retained
Earnings - Free - E/FCDU
1
60
(20)
(20)
(20)
(60)
60
60
-
60
APP. 85
08.12.31
For branches of foreign banks the account to be used is Ne t Due to/from HO/Branches/Agencies Abroad
APP. 85
08.12.31

III. Transfer of Net Realized Losses
Dr.
Cr.
Undivided
Profits/
(Losses)
Retained
Earnings Free1
Due to RBU E/FCDU

Net
Unrealized
E/FCDU
Losses
Due from
Gains/(Losses)
Realized
Equity
(Outflow)
Case B
Assume the following computation of cumulative net unrealized
losses recognized in profit and loss and in equity requiring transfer
of assets from RBU
(1) Net unrealized losses from operations
(2) Net unrealized losses on AFS Financial Assets
Cumulative net unrealized losses
100
20
120
Assume the balance of Due to RBU - E/FCDU Unrealized losses recognized

in Profit or Loss and in Equity is 0 before transfer of assets at year-end from RBU
Balance as of year-end before closing Undivided Profits/(Losses) to Retained Earnings
Free - E/FCDU and transfer of assets from RBU
To close Undivided Profits/(Losses) to Retained Earnings - Free - E/FCDU

Dr. Retained Earnings Free-E/FCDU
Cr. Undivided Profits(Losses)
To transfer assets from RBU representing net unrealized losses
Cr. Due to RBU - E/FCDU Unrealized Losses Recognized in Profit
or Loss and in Equity
(100)
(20)
(100)
100
100
100
(120)
120
(120)
(120)
Balance as of year-end after closing Undivided Profits/(Losses) to Retained Earnings Free - E/FCDU Unrealized and transfer of assets from RBU
1
(100)
(20)
(120)
120
APP. 86
08.12.31
GUIDELINES ON THE AVAILMENT OF USD DENOMINATED

REPURCHASE AGREEMENT FACILITY WITH THE BSP
The guidelines on the availment of
USD denominated repo agreement facility
of banks with the BSP are as follows:
A. Eligible borrowers
RBUs or FCDU/EFCDUs of banks with
FCDU/EFCDU authority who can
demonstrate legitimate funding needs can
avail of this facility.
B. Qualifying purposes
Proceeds from the borrowings shall be
used for legitimate liquidity requirements
of FCDU/EFCDU or RBU for local
operations as follows:
1. Compliance with FCDU/EFCDU
cover requirements;
2. Servicing of withdrawals of
FCDU/EFCDU; and
3. Servicing
trade-related
requirements.
Borrowing shall be for the account of
the applicant bank and shall not be used
to fund liquidity requirements of foreign
head office, foreign branches, affiliates, or
subsidiaries
C. Acceptable collateral
Eligible securities shall cover USDdenominated evidences of indebtedness
issued directly by the Government of the
Philippines (ROP Bonds) held by the
applicant bank. These can be lodged in
FCDU/EFCDUs or RBUs Available-forSale, HFT and HTM portfolios.
ROP Bonds to be pledged have to be
transferred/credited to BSPs designated
securities account before availment of the
USD repo agreement facility.
The tenor of the underlying security
should not be shorter than the overlying
instrument.
D. Valuation of securities
The haircut on the underlying securities
shall be determined by the Treasury
Department, with the concurrence of the
Governor. Collateral cover will be
maintained through periodic margin calls
as specified in the repo agreement.
Said valuation will be subject to
periodic review and will be modified
when necessary.
E. Available credit line
Credit lines shall be based on
outstanding USD-denominated evidences
of indebtedness issued directly by the
Government of the Philippines (ROP
Bonds) held by the applicant bank as of 30
September 2008.
F. Rate, term and trading time
The rates of the USD denominated
repo agreement facility shall be set by the
concurrence of the Governor, taking into
account prevailing liquidity/market
conditions.
The term of the USD denominated
repo agreement facility shall be set by the
concurrence of the Governor: Provided,
That, should a bank become disqualified
for the repo agreement facility, the
outstanding repo agreement shall
immediately become due and payable.
Trading time for the USD repo
agreement transactions shall be set from
10:00 AM to 12 Noon, then from 1:00 PM
to 2:00 PM.
G. Application requirements
Applicant bank shall submit the
following information/documents, and
APP. 86
08.12.31
such other documents as may be deemed

necessary, to the Treasury Department,
copy furnished the appropriate CPCD and
SES, to aid BSP evaluate applications:
1. Application for availment of the
facility stating therein the amount,
requested term, specific purpose of the
borrowing, including disclosure of the
specific collateral, including source, i.e.
RBU or FCDU/EFCDU;
2. Notarized undertaking/certification
signed by the banks president or country
manager (in the case of local branch of a
foreign bank), compliance officer and head
of treasury, indicating the following:
(a) Specific purpose of fund
utilization;
(b) Proceeds of borrowing shall be
used exclusively to fund liquidity
requirements of FCDU/EFCDU or RBU
local operations;
(c) That the Bank is not a conduit for
another bank nor will the Bank take
arbitrage positions on the availment of
the repo agreement facility.
H. Reportorial requirements
Banks with outstanding USD
denominated repo agreement with the
BSP are required to submit to the
appropriate CPCD of the SES the
following:
1. Report on the deployment/
utilization of USD repo borrowing and
other documents and supplemental
information, as may be required, to
enable BSP to assess the legitimacy of
the utilization of such funds, within three
(3) banking days from release of the
proceeds of the repo agreement; and
2. All documents and records
relative to the Banks availment and use
of proceeds of the USD denominated
repo agreement facility shall be made
available to the BSP upon request.
I.
Pre-termination
1. The repo agreement may be paid
at any time before maturity, subject to
mutual agreement of both parties.
2. The BSP may unilaterally
pre-terminate the borrowing arrangements
under the following conditions:
(a) Funds are found to have been used
for ineligible purposes
(b) Collateral margins, if any, are not
met.
J.
Documentation
The repo agreement between the
bank and the BSP shall be covered by a
master repo agreement, repo agreement
confirmation
and
such
other
documentation as may be necessary to
facilitate the transaction.
K. Accounting treatment
The USD denominated repo
agreement facility shall be treated as
collateralized borrowings from the BSP and
shall be accounted for in accordance with
the FRP issued under Subsection X161.3.
Eligible securities booked under the
HTM category shall be subject to the tainting
provision provided under Subsection X388.5
upon default/non-payment of the amount due
three (3) banking days after the maturity of
the repo agreement or disqualification of
borrowers.
L. Penalty clauses
Violations of the terms and conditions
of the USD repo agreement facility are
governed by sanctions provided under
X601.2, including but not limited, to
termination of eligibility and pretermination of any outstanding balance
through repayment and/or sale of the
collateral.
(M-2008-031 dated 23 October 2008 as amended/superseded
by M-2008-034 dated 12 November 2008)

Manual of Regulations For Banks Consumer Protection Related

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MANUAL OF REGULATIONS

AMANDO M. TETANGCO, JR.

The Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas

The Bangko Sentral ng Pilipinas

Part One on Organization, Management and Administration"

Main caption on Records

Part One on Organization, Management and Administration"

MANUAL OF REGULATIONS FOR BANKS

- ORGANIZATION, MANAGEMENT AND ADMINISTRATION

Classifications, Powers and Scope of Authorities of Banks

Basic Guidelines in Establishing Banks

Certificate of Authority to Register

SECTIONS X104 - X105

SECTIONS X107 - X110

C. MERGER OR CONSOLIDATION OF BANKS

Merger or Consolidation to Meet Minimum Capital

Merger or Consolidation Incentives

SECTIONS X113 - X115

D. RISK-BASED CAPITAL ADEQUACY RATIO

SECTIONS X117 - X118

Issuance of Unsecured Subordinated Debt

Interim Tier 1 Capital for Banks Under Rehabilitation

E. LIBERALIZED ENTRY AND SCOPE OF OPERATIONS OF FOREIGN BANKS

Liberalized Entry and Scope of Operations of Foreign Banks

F. STOCK, STOCKHOLDERS AND DIVIDENDS

Shares of Stock of Banks

Shares of Stock of Universal/Commercial Banks

Shares of Stock of Thrift Banks

SECTIONS X128 - X135

Limitations/Amount Available on Dividends Declared by Rural

SECTIONS X138 - X140

G. DIRECTORS, OFFICERS AND EMPLOYEES

X141 Definition and Qualifications of Directors; Responsibilities and

X142 Definition and Qualifications of Officers

X143 Disqualification of Directors and Officers

Persons disqualified to become officers

X144 Bio-data of Directors and Officers

X145 Interlocking Directorships and/or Officerships

X146 Profit Sharing Programs

X147 Compensation and Other Benefits of Directors and Officers

3147 Bonding/Training of Directors, Officers and Employees

X149 Conducting Business in an Unsafe/Unsound Manner

X150 Rules of Procedure on Administrative Cases Involving Directors

X151 Establishment/Relocation/Voluntary Closure/Sale of Branches

Relocation of branches/other banking offices

X152 Relocation of Head Offices

X153 Establishment of Additional Branches of Foreign Banks

X154 Establishment of Offices Abroad

X155 Tellering Booths

X156 Banking Days and Hours

SECTIONS X157 - X160

Adoption of the Manual of Accounts

Philippine Financial Reporting Standards/Philippine

Report on the Sworn Statement on Real Estate/Chattel

X163 Internal Control System

X164 Internal Audit Function

X165 Selection, Appointment and Reporting Requirements for External

X166 Audited Financial Statements of Banks

X167 Business Name

X168 Management Contracts

X169 Duties and Responsibilities of Banks and their Directors/Officers

X170 Compliance System; Compliance Officer